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Asian Currencies Lower As Debt Fears Return

Date : 04/15/2012 @ 11:10PM
Source : Dow Jones News

Asian Currencies Lower As Debt Fears Return

--Risk appetite wanes as focus returns to European debt

--China yuan trading bank widening a surprise, but few shock waves

--Moody's report on European Bank darkens mood

SYDNEY -- The euro and Asian emerging currencies were lower against the dollar in early trade Monday on fears about Spanish debt, and the Chinese yuan fell against the dollar after China's central bank shifted to a more flexible exchange rate over the weekend.

The Singapore dollar fell, with the U.S. dollar at S$1.2516 at 0210 GMT versus S$1.2482 late Friday in New York.

News that China had widened the yuan trading band was greeted with some surprise, but most traders said it was a positive sign that Chinese authorities are less worried about a hard landing for the economy. The move bolsters expectations that the yuan has entered a period of greater volatility and increased two-way trade, and will see less appreciation in the medium term.

The yuan fell sharply against the U.S. dollar in the wake of Beijing's move. The dollar traded at CNY6.3196 at 0158 GMT, versus CNY6.3030 late Friday. That was after the People's Bank of China fixed its dollar-yuan parity rate higher at 6.2960, versus its Friday fixing of 6.2879.

The PBOC said Saturday it would widen the yuan's trading band against the U.S. dollar to 1.0% above and below the parity rate from Monday. The trading range was 0.5% previously.

"The move should appease those calling for more yuan appreciation, and moderate concerns regarding global imbalances," said Emma Lawson, senior currency strategist at National Australia Bank.

"Some comfort may be taken by the view that this liberalization may signal China's level of comfort with the economy, as any currency strengthening represents a policy tightening, at the margin," she added.

But the major focus of trading is on Europe, with attention locked on funding for Spain and Italy's banks.

"So far, there hasn't been much impact from the yuan band widening. Spain is having a bigger impact on Asian trading," said Frances Cheung, senior strategist Asia ex-Japan at Credit Agricole.

Over the weekend, top European Central Bank official Joerg Asmussen said Europe has "done its part" to protect the global economy against financial turbulence, and called on the rest of the world to pledge more money to the International Monetary Fund's anti-crisis war chest.

The comments came after data Friday showed Spanish bank borrowing from the European Central Bank surged to new highs in March, sending shudders through European markets and helping push U.S. stocks to their worst week this year.

"The euro is on its knees thanks to renewed funding pressures for Spain and Italy. Until that gets resolved the euro will remain under the pump," said David Scutt, senior trader at Arab Bank.

Tim Waterer, strategist at CMC Markets said a report suggesting ratings agency Moody's Investors Service was looking at a possible downgrade of European institutions also weighed on sentiment

Early Monday, the euro was at $1.3023 from $1.3077 late Friday. The common currency was at Y105.3605 from Y105.77. The dollar was unchanged at Y80.915 and at CHF0.99233 from CHF0.9197. The Australian dollar was down versus the greenback, at $1.0327 from $1.0372. The U.K. pound was at $1.5833 from $1.5843.

-By James Glynn, Dow Jones Newswires; 61-2-8272-4685; james.glynn@dowjones.com



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