Monday, December 12, 2011

Asian FX ease after EU summit, output data hits rupee

SINGAPORE (Dec 12): Most emerging Asian currencies dipped on Monday on worries that the last week's European summit deal does little to tackle the current debt crisis, while the Indian rupee extended losses after a surprising large contraction in industrial output.

On Friday, 26 of the 27 European Union leaders agreed to pursue stricter budget rules for the continent and also to have euro zone states and others provide up to 200 billion euros in bilateral loans to the International Monetary Fund (IMF) to help tackle the crisis.

But the pact failed to ease worries about fiscal problems plaguing Italy and Spain, or broader concerns that the festering debt crisis could drag the global economy into recession or a prolonged period of lacklustre growth.

Growth in China's exports and imports slowed in November amid faltering demand abroad and at home, data showed at the weekend. Adding to investors' reluctance to take on riskier assets, the euro extended its slide after Moody's said it expected to reassess euro zone sovereign ratings in the first quarter of 2012.

"This (the European deal) is at least helpful that a meltdown-like scenario will not be realized in the near term, but it does leave the door open to severe bouts of risk-off market behaviour as the potential for unexpected stumbling blocks still exist," said Sacha Tihanyi, senior currency strategist for Scotia Capital in Hong Kong.

"I find Asia ex-Japan currencies' behaviour logical this morning... not too enthusiastic," he added. Emerging Asian currencies fell last week as investors slashed risky positions on doubts that European leaders would produce a credible scheme to ease the debt problems.


The rupee extended early losses to 0.7 percent after data showed India's industrial output fell for the first time in more than two years in October, contracting much more than markets had expected, as waning consumer demand took a toll. Dollar/rupee weakened on importers' demand, while one-year dollar/rupee non-delverable forward (NDF) rose.

Credit Agricole recommended buying one-year dollar/rupee NDF against one-month NDF. Credit Agricole said the rupee is seen softening on India's weakening fundamentals and speculation of possible interest rate cuts by the central bank next year, but it does not want to take an outright position given the large impact of global sentiment, whose direction remains uncertain.

"Shorter-dated NDFs should react less to negative data given that they move closer to spot, which should not fall much. This is because the RBI cannot afford the inflationary impact of a much weaker currency, and would limit any depreciation via regulatory measures or capital controls, while it is unlikely to react much to weakness in longer dated NDFs," it said in a note.

Credit Agricole recommends buying one-year NDF at 54.81 and selling one-month NDF at 52.61 with spread target of 220 pips and stop loss of 120 pips.


U.S. dollar/Singapore dollar rose on a weaker euro but it has resistance around 1.2989-1.3009, the 61.8 percent and 76.4 percent Fibonacci retracement of Friday's move, for now. The pair is seen moving in a range between 1.2900-1.3010 and eventually testing 1.3060, the 76.4 percent retracement of its slide between late Nov and early Dec.

WON Dollar/won turned higher on demand from offshore hedge funds and bids linked to foreign investors' recent stock sales. Exporters continued to unload the pair on settlements, but they were not enough to keep it lower than the previous close, dealers said.

PHILIPPINE PESO Dollar/Philippine peso slid on remittance inflows and some speculators are looking to sell the pair further, seeing players have long positions to clear. "The market is a bit relieved although the (EU) summit fell short of expectations. The market was already long before the summit," said a European bank dealer in Manila. The dealer said the pair may be supported around 43.50 for now but the pair may test 43.20 again in coming days.

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