Confidence in euro maintained despite chaos
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Though Asian currencies depreciated against the US dollar along with the euro, UOB Research does not expect significant market distress in Asia at this point, unless the Greek drama turns into a global financial market contagion.
"While the risk of Grexit is rising and the uncertainties increasing given that we are entering the territory of default and capital controls, we still think that the European authorities are both prepared and equipped to act to preserve the integrity of the euro in the face of market turbulence from Greece uncertainties," it said in a research note.
Thai baht weakened to 33.85-86 against US dollar at the open Monday, as most emerging Asian currencies led by the Malaysian ringgit lost ground.
"Failures to reach the bailout package that lead to bank closure weaken the euro against the greenback," said a currency trader in Bangkok. He expected the Thai baht to move in the range of 33.75-95 today.
Some economists foresee the $/34 rate soon. The level was last seen in 2009.
The ringgit today traded at a 10-year low as Greece looked to be heading for a default on its debt, causing investors to head for safer assets. The ringgit came under additional pressure due to concern that Fitch Ratings may downgrade Malaysia’s credit rating due to the debt problems of state fund 1MDB.
South Korea’s won slid to a 3-1/2-month low, while the Indonesian rupiah fell to around a 17-year trough.
Emerging Asian currencies are likely to stay under pressuredue to a strong US dollar and growing risk aversion, with the prospect of Greece being forced out of the euro, analysts said.
"The stronger dollar outlook coupled with risk-off sentiment emanating from Greek risks is clearly negative for Asian FX," said Heng Koon How, Credit Suisse Private Bank’s senior currency strategist in Singapore. "Particularly, we are negative on ringgit because of an imminent sovereign credit rating downgrade," he said.
The ringgit lost 0.4 per cent to 3.7830 per dollar, its weakest since July 2005. Malaysian companies bought the dollar for month-end payments, hurting the local currency further. The Malaysian unit’s downside was limited by caution over possible intervention by the central bank to support the worst-performing Asian currency so far this year.
The Korean won fell nearly 1 per cent at one stage to 1,127.9 perdollar, its weakest since March 18. The South Korean currency pared some of its losses as exporters chased it for month-end settlements, and that caused some traders to cover short positions in the won.
