SINGAPORE: Most emerging Asian currencies skidded on Wednesday with the Indian rupee hitting a record low as increasing worries about a messy Greek exit from the euro zone accelerated demand for safer assets.
The local currencies also fell against the yen after the Bank of Japan kept monetary policy steady, saving ammunition for later in case Europe's deepening debt crisis warrants further supportive action to support the fragile economy.
Investors sold emerging Asian currencies along with other risky assets after Dow Jones on Tuesday quoted former Greek Prime Minister Lucas Papademos as saying the country had no choice but to stick with a painful austerity programme or face a damaging exit from the euro zone, a risk he said was unlikely to materialise but was real.
Hopes also faded that an informal summit among European leaders later on Wednesday would produce fresh steps on Greece.
But Papademos later was quoted by CNBC saying that there are no preparations under way in Greece for possibly exiting the currency block, providing some relief to emerging Asian currencies and the euro.
Still, sustained concerns over the euro zone's debt crisis without any signs of clear solution are likely to raise risk aversion and keep investors away from regional units, dealers and analysts said.
CIMB Investment Bank said that it would be a key if Greece gets out of the European Union while implementing its macroeconomic policies—so called “Grexit” scenario—or if Athens stays in but plays no part in the single currency and remains in the Economic and Monetary Union (EMU) on its policy front, a so-called “Geuro” scenario.
While Brussels may be in a rush to set up a framework for both scenarios, “we note the euro is showing no tendency of reflecting any solution to the crisis, it's driven by speeches and comments by EU and Greek officials,” CIMB said in a note.
Separately, CIMB's rates and foreign exchange strategist Suresh Kumar Ramanathan in Kuala Lumpur said “The risk is short term funds exiting in a risk-averse environment that will jolt Asian currencies, but the key here is what type of situation pans out in Greece, either a Grexit or Greuro. Both have a negative connation to Asia, but it would be worse if it is a Grexit.”
“Playing Asia-ex Japan FX from the short side against the dollar is still preferred strategy,” Ramanathan added.
The growing risk aversion hit emerging Asian currencies, sending the rupee to a record low, although the central bank was spotted buying it, dealers said.
The South Korean won underperformed on foreign investors' stock sales over 16 consecutive days and as offshore funds sold it. Local investment trust firms also bought dollars.
The won found some relief from exporters' demand for settlements, while investors stayed cautious over possible dollar-selling intervention by foreign exchange authorities.
Still, investors were looking to sell the local unit on allies as foreign investors have dumped 3.6 trillion Korean won worth of stocks since May 2, according to Korea Exchange data.
“It's better to buy dollar/won on dips, although we need to see how the BOK reacts. It may be capped at 1,175, but it's definitely good to buy it below 1,170,” said a foreign bank dealer in Seoul, referring to South Korea's central bank.
