Tuesday, January 3, 2012

Sing dlr, ringgit breach resistance, Asia FX outlook cautious

SINGAPORE (Jan 3): Short-term investors bought emerging Asian currencies on Tuesday, helping the Singapore dollar and the ringgit break resistance lines on improving risk appetite on the first trading day of the year in most markets.

Players remained reluctant to chase the regional units too aggressively, however, as they awaited fresh developments in Europe's debt crisis.

The Indian rupee rose on hopes for capital inflows after the government said on Sunday that individual foreign investors would be allowed to directly buy stocks from later this month. But the local currency still underperformed most of its Asian peers.

The Singapore dollar strengthened as investors were relieved by data showing the country's economy contracted just in line with market estimates.

Persistent worries about the euro zone's debt crisis forced investors to take profits from emerging Asian currencies rather than chasing them up further, dealers and analysts said.

Higher oil prices, with U.S. crude jumping to above $100 a barrel, are also expected to put pressure on the regional units as many countries in the region rely heavily on imported oil.

"The (emerging Asian currencies') outlook for Q1 remains negative as the euro zone fiscal crisis has not been solved and will come back to bite," said Dariusz Kowalczyk, senior economist and strategist for Asia ex-Japan at Credit Agricole CIB in Hong Kong.

He said the won, the Singapore dollar and the rupee are more vulnerable while the Chinese yuan would be a relative safe heaven among emerging Asian currencies.

Investors are keeping an eye on bond sales by key euro zone members.

Germany and France are set to issue bonds on Wednesday and Thursday, while Italy and Spain will start their 2012 funding next week.

Market players are particularly concerned about Italy's cost of funding in the face of around 100 billion euros of redemption and coupon payments in the first four months of the year.

SINGAPORE DOLLAR

U.S. dollar/Singapore dollar broke through the 61.8 percent Fibonacci retracement of 1.2903 as interbank speculators and short term leveraged accounts sold it. Investors were relieved that fourth-quarter GDP data was not worse then expected.

The economy contracted 4.9% in the fourth quarter of 2011 from the previous three months, roughly in line with economists' estimates. If the pair ends the day lower than the retracement, it may head to the 76.4 percent retracement of 1.2851.

WON

Offshore funds sold dollar/won, helping the pair break through a 20-day moving average of 1,151.7 and pushing it down to around the top of the daily Ichimoku cloud. Some local players also cleared long positions to stop losses.

But South Korean importers bought dollars for settlements. "Despite offers from some foreign names, I don't expect further falls from here. Importers bids are pretty strong for now," said a foreign bank dealer in Seoul.

But if the cloud's top is cleared, dollar/won is seen heading to 1,146.0, the 61.8 percent retracement of its rise in December.

RINGGIT

Dollar/ringgit broke through a 55-day moving average and the 61.8 percent Fibonacci retracement of its December rise. The pair breached the retracement of 3.1509 and the average of 3.1483. If it ends the day lower than those support levels, it may head to 3.1396, the 76.4 percent retracement. And the next level could be 3.1382, the 38.2 percent retracement of its rise between October and December.

PHILIPPINE PESO

Interbank speculators sold dollar/Philippine peso , but some players were looking to buy it on worries about the euro zone. "I think this should be a chance for people to buy USD. EU worries are still out there," says a European bank dealer in Manila.- Reuters

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