Rising tensions in the Korean peninsula look to be more than just a passing “flash in the pan,” says Sue Trinh, forex strategist at RBC Capital Markets in Hong Kong.
The dollar-yuan is tracking the dollar index closely. It’s experiencing an indirect lift from the exchange of fire as dealers around the world scurry to the dollar, which is viewed as a safe-haven currency,” one trader says.
Fitch Ratings is maintaining its A+ rating with a stable outlook for South Korea, says sovereign analyst Andrew Colquhoun, declining to comment on the implications of the flare-up in hostilities on the Korean peninsula for the rest of the region.?”We’ll monitor developments closely, as is always the case,” he said.
The news of the shelling jolted financial markets, with Asian currencies selling off against the U.S. dollar and spreads on credit default swaps widening, as investors braced for increased risk in the Asian region, whose economy has powered the global economic recovery.
The Bank of Korea is convening an emergency meeting on the news of artillery fire between South and North Korea.
BNP’s Rob Ryan says: “Any time shells fly through the air it’s not going to be positive risk.” Gareth Berry, director of forex strategy for UBS in Singapore, said watch for another round of selling as Europe’s markets open. “It’s really bad for risk appetite. Broadly, it depends on how things develop from here, but when the Europeans come in they may also take fright on the headlines and add to this move lower.” Mr. Berry noted the?yen move is about Japan’s proximity to developments.
A trader with foreign bank in Singapore says Asian currencies sold on worries of political tension in Asia, says investors going short AUD, SGD, JPY.
Likewise, costs of credit protection on Asian names shot up after the news in a mostly knee-jerk reaction, says Nomura’s William Mak.
Fitch Ratings said it is closely monitoring the developments as well.
-Geoffrey?Rogow, James Glynn and Bijou George
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