Wednesday, November 9, 2011

Ringgit, won up on Italy, but profit-taking caps

SINGAPORE (Nov 9): The ringgit and the won rose on Wednesday after Italian prime minister's pledge to resign, while investors took profit from emerging Asian currencies limiting their gains on sustained political uncertainty over the debt-ridden euro zone member.

The Malaysian ringgit outperformed its Asian peers in slow trading, but investors were reluctant to chase it around a resistance at 3.1000 per dollar.

On Tuesday, Italy's Prime Minister Silvio Berlusconi said he would leave the post, increasing hopes the country would carry out reforms to contain the European debt crisis containing. That boosted stocks and other emerging currencies such as the Brazil's real.

Still, Italy looks set for lengthy political ambiguity with Berlusconi's center-right party calling for election and the main opposition for a national unity government, preventing investors from chasing risky emerging Asian currencies.

"The political situation remains very uncertain in Italy. Even with a change of government, will the new government still be able to meet austerity targets? That remains a big question," said Jonathan Cavenagh, foreign exchange strategist for Westpac in Singapore.

"Risk appetite remains skittish at the moment and liquidity poor. Investors are reluctant to take positions and I think it's going to remain choppy into year-end," he said, adding he prefer selling emerging Asian currencies on rallies.

Most of the regional units have fallen so far this month on fears that political uncertainty in the euro zone may hamper efforts to cope with the continent's debt problems.

Slowing China's inflation did not help emerging Asian currencies as investors stayed focused on the euro zone, although the data renewed hopes for Beijing's steps to support the economy. On Wednesday, the South Korean won rose as local speculators reduced overnight dollar-long positions.

But the local currency gave up some of early rises as speculators covered dollar-short positions, eyeing on possible dollar demand linked to Michelin's sale of a stake in Hankook Tire .

The Singapore dollar fell. Michelin said it sold all of its 9.98 percent stake in the South Korean tyre maker for 623 billion won ($555.7 million).

Dealers said they have not seen dollar bids linked to the deal yet and some said if foreign investors bought all of the stake, the impact of the deal on won would be limited.

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