Barefoot Investor: Asia Currencies Rebound After `Knee-Jerk Reaction' to Korea Artillery Fire

Asian currencies rose for the first time in four days, rebounding after an exchange of artillery fire between North and South Korea triggered losses yesterday.

The Asia Dollar Index, which tracks Asia’s 10 most-used currencies excluding the yen, rose 0.4 percent as of 4:15 p.m. in Hong Kong, having yesterday closed at an eight-week low. South Korea’s won dropped more than 3 percent today before recovering the bulk of its slide after the government pledged to stabilize financial markets.

“Asian currencies were rattled a bit by the incident between North and South Korea,” said Brian Jackson, an emerging-market strategist at Royal Bank of Canada in Hong Kong. “It does seem that there was a bit of a knee-jerk reaction and now people think the situation may not be as bad.”

The won declined 0.4 percent to close at 1,142.25 per dollar in Seoul, according to data compiled by Bloomberg. It earlier touched 1,172.50, the weakest level since Sept. 9. Malaysia’s ringgit rose 0.2 percent to 3.1315 as of 4:30 p.m. in Kuala Lumpur, following a 1.1 percent slide yesterday, and the Thai baht gained 0.1 percent to 30.04. Taiwan’s dollar was steady at NT$30.80, after climbing as much as 1.3 percent.

The won trimmed its losses after the finance ministry said today the government will supply “ample” liquidity to keep financial markets stable and will act on “herd” behavior. South Korea scrambled fighter jets and returned fire after North Korea yesterday lobbed shells at an island near their border, killing two soldiers and setting houses ablaze in the worst attack in at least eight months.

Taiwan Production

Taiwan’s dollar erased earlier gains on suspected central bank intervention to check appreciation. A government report yesterday showed industrial production climbed 14.4 percent in October from a year earlier, more than the 13.1 percent median estimate in a Bloomberg survey of economists.

Taiwan’s stabilization fund, central bank and Financial Supervisory Commission are ready to enter the markets to ensure stability amid increased tension between North and South Korea, the Taipei-based Commercial Times reported today, without saying where it got the information.

“The strong economic growth will continue to push the Taiwan dollar higher and put pressure on the central bank to slow the currency’s rally,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan in Taipei.

The Asia Dollar Index declined in each of the last two weeks as Ireland entered talks to secure financial aid, spurring concern Europe’s debt crisis will worsen and bolstering demand for dollars. Ireland’s debt rating was lowered two notches yesterday by Standard & Poor’s.

‘Risk-Off Day’

Yuan forwards traded near a four-week low and China’s currency weakened 0.1 percent. Twelve-month non-deliverable forwards were little changed at 6.4990 per dollar, reflecting bets the currency will strengthen 2.3 percent in a year from the spot rate of 6.6510.

“It’s a risk-off day today, with the Korea situation and the European debt crisis,” said Patrick Perret-Green, the Singapore-based head of foreign-exchange and rates strategy at Citigroup Inc. “In this environment people do not want to trade.”

Elsewhere, the Philippine peso gained 0.5 percent to 43.960 versus the greenback and Indonesia’s rupiah rose 0.2 percent to 8,958. Singapore’s dollar was little changed at S$1.3098. (Source: Bloomberg)


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