Profit-taking may dent PH peso in early 2013 - trader

By Masayuki Kitano, Reuters

Posted at Dec 07 2012 04:56 PM | Updated as of Dec 08 2012 02:28 AM

A worker counts one thousand pesos bills inside a money changer in Manila November 28, 2012. Photo by Romeo Ranoco, Reuters

SINGAPORE - Most emerging Asian currencies were steady to firmer on Friday as market sentiment toward risky assets stayed generally positive, with the Philippine peso regaining a bit of footing after its drop the day before.

Asian currencies were resilient even as the euro came under pressure after the European Central Bank on Thursday divulged its bleak outlook for the euro zone and touched on the idea of turning interest rates negative. 

A fall in the euro can give the dollar a lift and weigh on Asian currencies. Investors' risk appetite can take a hit if a drop in the single currency is triggered by heightened concerns about the euro zone's debt crisis, but that wasn't the case this time. 

"It was just a sell-off in the euro and we didn't see a move toward taking risk off, so there hasn't been much of an impact on Asia," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, referring to the relatively firm tone of Asian currencies.

In a sign of the positive sentiment toward risky assets, MSCI's broadest index of Asia-Pacific shares outside Japan  touched a 16-month high on Friday.

Sumitomo Mitsui Banking Corporation's Okagawa said Southeast Asian currencies such as the Singapore dollar , the Philippine peso, Malaysian ringgit  and the Thai baht , are likely to stay firm in the first quarter of 2013.

With central banks of developed countries such as the U.S. Federal Reserve supplying ample liquidity to their banking sectors and economies, some of that money is likely to find its way into Asia, Okagawa said.

This seems especially likely because interest rates and bond yields in developed countries are already very low, he said.

"Yields available in developed economies have already been crushed, and the only way to get (higher) yields now is by taking on credit risk," Okagawa said, adding that the hunt for yield will probably continue to support investor demand for  emerging market debt.

Asian currencies could take a hit, however, if U.S. legislators do not reach an agreement to avoid a looming fiscal crunch, or if the Chinese economy were to see a sharp slowdown, Okagawa added.

Although many market players are optimistic that U.S. lawmakers will reach a deal before year-end to avoid the "fiscal cliff" of tax hikes and spending cuts that could pull the U.S. economy back into recession, there is some lingering uncertainty.

Over the past few weeks, Asian currencies have been supported by signs of a revival in China's economic growth as well as reduced concerns about the euro zone's sovereign debt crisis. Some of their gains, however, have been tempered by suspected intervention by central banks.     

The peso edged higher, finding support as traders looked for chances to sell the dollar in the wake of its rise against the peso the previous day.

"People still looking to sell (the dollar) on rallies ahead of 41.00, protecting resistance and stops at 41.00," said a trader for a European bank, referring to stop-loss dollar orders that could be triggered at that level.

Although it found support on Friday, the peso could be due for a pull-back in the first quarter of 2013, the trader said, adding that the peso looked "too strong" and that investors may find it tempting to book profits early next year.

Analysts estimate that bullish bets on the Philippine peso are now at their highest in more than two years, according to a Reuters survey. 

Supported by factors such as remittances from Filipinos overseas, robust economic growth in the Philippines and a sovereign rating upgrade by Moody's in late October, the peso is the best-performing emerging Asian currency so far in 2012, having risen about 7 percent against the dollar.