Central banks, hedge funds to stem rising Asian currencies<\/p>\n
SINGAPORE (AFP): Asia's rising currencies are expected to
\nconsolidate the coming week with central banks seeking to cap
\ntheir upside and hedge funds betting the regional units will
\nfall, dealers and analysts say.<\/p>\n
Most of the regional currencies, except notably for the
\nSingapore dollar, had appreciated on the back of a robust yen
\nlast week, when at least two central banks were reportedly in the
\nmarket selling their own currencies.<\/p>\n
\"We can expect regional currencies to weaken this week,\" said
\nAndy Tan, general manager of U.S. research house Standard and
\nPoor's MMS in Singapore.<\/p>\n
Tan said talk was that hedge funds had quietly taken positions
\nagainst regional currencies to capitalize on the flush liquidity
\nin the market.<\/p>\n
\"They are probably expecting that Asian currencies have some
\nroom to fall,\" he said. \"This is among the market concerns the
\ncoming week.\"<\/p>\n
Dealers say among the currencies linked to the hedge funds are
\nthe Singapore dollar, Thai baht, the Australian dollar and the
\nHong Kong dollar.<\/p>\n
Hedge funds were blamed for the Asian currency crisis that
\nbroke out in mid-1997 and lead to financial turmoil and slammed
\nthe brakes on the region's rapid economic growth.<\/p>\n
Tan said foreign exchange markets would closely monitor a
\nmeeting of the Basle-based Bank of International Settlements
\n(BIS), the central bank of central banks, in Hong Kong on Monday.<\/p>\n
Jacqueline Ong, regional economist with British financial
\nhouse IDEA here, said the market tendency should remain to sell
\nthe U.S. dollar as it rallies but she added that the downside for
\nthe greenback seemed to be heavily protected around 110 against
\nthe yen.<\/p>\n
\"The market is pretty fearful that beyond that there could be
\nBoJ (Bank of Japan, the central bank) intervention,\" she said.<\/p>\n
The yen, which has surged nearly 35 percent against the U.S.
\ndollar over the past five months, closed at 110.98 against the
\ngreenback in New York on Friday, sharply higher than the previous
\nweek's close of 113.52.<\/p>\n
\"Given that scenario, the upside for regionals is controlled
\nat present except for the likes of the Philippine peso and the
\nSouth Korean won which have an upside scope,\" Ong said.<\/p>\n
Desmond Supple, Singapore-based head of research for Asian
\ncurrencies at Barclays Bank, said Asian central banks were
\nexpected to cap the strength of their currencies over the coming
\nweeks.<\/p>\n
\"Rising foreign exchange reserves as a result of intervention
\nwill help counteract the loss of reserves when many Asian
\ncountries begin to repay IMF loans,\" he said.<\/p>\n
Loans borrowed from the International Monetary Fund (IMF) were
\nbased on U.S. dollars, which the central banks would mop up from
\nthe market through intervention by selling their own currencies
\nand hence weakening them, dealers say.<\/p>\n
The Singapore dollar closed Friday at 1.6724 from its previous
\nweek's 1.6600, the peso at 38.04 from 39.14, the Thai baht at
\n36.25 from 36.75, the Taiwan dollar at 32.158 from 32.215, the
\nwon at 1,175 from 1,191.5 and the Indonesian rupiah at 8,000 from
\n7,950.<\/p>\n
Supple said that apart from the strong yen, another factor
\nsupporting regional currencies at present was the market's
\ntendency to price-in a sustained economic recovery for the
\nrecession-hit region and associated near-term upgrading of some
\ncountries' ratings towards investment grade.<\/p>\n
This followed continued signs the region's real output was
\nrecovering, and the foreign exchange reserves were rising to
\nmoderate previous sovereign risk concerns, he said.<\/p>\n
\"However, while we expect the market to continue to focus on
\nfavorable headline numbers over the short-term, and while the
\nrally created by lower (interest) rates and a stronger yen
\ndiscourages closer inspection of economic fundamentals, we remain
\nvery wary,\" Supple said.<\/p>",
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