Won turns up after 6-month low; ringgit gains after election call

Won turns up after 6-month low; ringgit gains after election call

April 03, 2013

Malaysian ringgit notes are seen among other currency notes in this photo illustration taken in Singapore March 14, 2013. — Reuters picSINGAPORE, April 3 — The South Korean won slid to its weakest level in more than six months today as tensions mounted with the North, while the Malaysian ringgit rose after the prime minister dissolved parliament, paving the way for long-awaited elections.

The won fell as much as 0.5 per cent to 1,123.5 per dollar at one point, its weakest since September 20.

But it pared early losses after South Korean exporters took the slide as a chance to buy the currency on dips for settlements, prompting interbank speculators to cover short positions, traders said.

Some offshore funds and custodian banks also bought the won, they added.

“Long dollar positions were excessive a bit,” said a senior foreign bank trader in Seoul.

“The won can drop again with more tensions, but it may be safer to buy the won when it is weaker than 1,120,” said the trader, adding exporters will chase the won around that level.

North Korea stepped up pressure on Seoul by closing access to a joint factory zone. More than 800 South Koreans had stayed overnight in the park, just north of the world’s most heavily armed border, and Seoul demanded that it be re-opened.

That came a day after Pyongyang said it would revive a mothballed nuclear reactor able to produce bomb-grade plutonium, but stressed it was seeking a deterrent capacity and did not repeat threats to attack the South and the United States.

“I haven’t seen it this bad… All you need is one stupid soldier on either side to launch something,” said a senior US bank currency trader in Singapore, adding the won has not fully priced in geopolitical tensions yet.

“If the North does something stupid and quickly fires 500 artillery shells across to Seoul, all of a sudden the economy is doing to implode and dollar/won has another try at 1,500,” he said.

Seoul is about 50km away from the demilitarised zone against North Korea.

The won has already been the emerging Asia’s worst performer so far this year, with a 4.4 per cent slide against the dollar.

Technically, it is seen heading to 1,125.3, its high on May 2, which provoked a drop to 1,185.6 within a month, analysts said. The next target would be 1,135 and 1,138, they added.

Foreign investors have sold a combined net 265.7 billion won ($237.64 million) worth of stocks in the main stock exchange , according to the Korea Exchange data.

They dumped a total of nearly 2 trillion won in bonds during the first two days of the month, Korea Financial Investment Association said.     

The selling appeared to linked some foreign banks’ unwinding of arbitrage trading, bond traders in Seoul said.

“We stay bearish on the Korean won,” said Sameer Goel, head of rates and FX strategy at Deutsche Bank in Singapore.

Goel said there was a multitude of factors for that bearishness: a weaker yen, the central bank’s reluctance to intervene to cap the dollar’s upside, downgrades to growth forecasts and geopolitical tensions.

South Korea is seen as the worst victim of a weaker yen resulting from Japan’s expansionary policy as the neighbouring countries compete in major export markets.

However, some analysts and traders said it was too early to expect South Korean assets including the won to plunge further unless there is an actual military confrontation, noting the North has a long history of issuing belligerent statements.

“North Korea’s rhetoric highlights long-standing geopolitical event risk which, however, has not had a material, adverse affect on market sentiment in Seoul or on South Korea’s economic fundamentals — this is a credit strength for South Korea,” Moody’s Investors Service said in a note.

“More importantly from a credit perspective, government borrowing costs have not been adversely affected by Pyongyang’s provocations and rhetoric,” the ratings agency said.

Ringgit

The ringgit started the day weaker, but turned higher as investors covered short positions after Prime Minister Najib Razak called a general election.

The Malaysian currency has been under pressure from uncertainty over the vote, which is expected to be held on April 27.

The vote could be the most closely contested the ruling coalition has faced in its 56-year rule.

Malaysia’s financial markets were caught napping in 2008 when shock electoral gains by the opposition redrew the country’s political map and sparked a 10 per cent one-day plunge in the main index.

But traders and analysts have said the political concerns have been enough priced in.

Some traders said the ringgit may appreciate further, saying the election call reduced political uncertainties.

“Dollar/ringgit would have fallen further without the election factor. There is a lot of FDI coming,” said a Malaysian bank trader in Kuala Lumpur.

Analysts also said the ringgit needs to strengthen past a chart resistance area around 3.0800 per dollar and 3.0830, analysts said.

The Malaysian currency had tried to strengthen past the area three times in early February, but it failed, resulting in a drop to 3.1390.

Baht

The Thai baht eased as investors covered dollar-short positions.

But the baht recovered some of initial losses on inflows with local stocks and bonds seen attractive.

Currency investors showed little reaction to the central bank’s decision to keep its policy interest rate unchanged at 2.75 per cent, as that had been expected. — Reuters 

Won turns up after 6-month low; ringgit gains after election call