Asian currencies hold ground as dollar rises

Asian currencies hold ground as dollar rises

SINGAPORE (Reuters): Most Asian currencies kept their footing yesterday as the U.S. dollar burst above a stubborn barrier at 130 yen after reports Japan's government might not include income tax cuts in a new stimulus package.

The Malaysian ringgit was the biggest gainer, reaching highs of around 3.64 to the dollar on unwinding of baht/ringgit crosses after the dollar bounced up from lows near 40.00 per dollar on buying by a Hong Kong-based U.S. investment house.

Dealers said the ringgit would face resistance at the 3.63 level after breaking out of its recent 3.70-3.80 range, but the market remained upbeat on Malaysia ahead of the government's expected release of new economic stimulus measures next week.

"People who were short ringgit and long baht are unwinding those positions as the dollar/baht goes up," said a European dealer in Singapore.

Dealers said funds were adjusting their positions in the baht as a debate on a no-confidence motion against the Thai government on charges of corruption and incompetence began on Wednesday.

Most analysts said Prime Minister Chuan Leekpai's four-month- old government would easily defeat the motion as it had taken effective actions to prop up the crisis-ridden economy and was popular with the markets.

The Indonesian rupiah remained confined to its early ranges as the market ignored reports from a meeting between senior IMF official Hubert Neiss and Indonesian coordinating minister for Economy, Finance and Industry Ginandjar Kartasasmita.

Neiss said both sides had agreed on the best way to proceed with a review of Indonesia's economic reform program and would set up five groups to discuss monetary policy, the banking system, the budget and subsidies, structural reforms and restructuring of corporate debt.

There was no mention of the controversial currency board proposal or any other system to stabilize the rupiah.

Neiss, who arrived in Jakarta on Tuesday, said earlier the fund's executive board would only approve the IMF review two weeks after its team completed its work in Jakarta.

Currency board

Dealers said the market had largely priced in a delay in the release of the IMF's second $3.00 billion loan tranche, but traders were reluctant to take positions in the rupiah amid lingering uncertainty over the currency board.

"The market was focusing day by day on Indonesia and players were increasing their dollar exposure...But now it looks like nothing's going to happen soon so the funds are slowly unwinding," said a currency analyst in Singapore. "But the overall scenario is still negative...and they could take the dollar even higher."

The Singapore dollar recovered from a brief dip below 1.61 to the U.S. dollar, but its rise was capped by local bank dollar bids around 1.6000/30.

In north Asia, the Taiwan dollar hits lows of T$32.82 against the U.S. dollar on the yen's sharp fall and persistent commercial demand for the U.S. dollar from importers meeting quarterly needs.

The South Korean won was hit by dollar short-covering, but corporate dollar offers were expected near the 1,500 per dollar level.

Central bank figures showed Korea's current account turned to a surplus of $3.87 billion in February from a $2.42 billion deficit a year earlier.

The Bank of Korea raised its forecast for the 1998 current account surplus to $18-$20 billion from a $5 billion surplus previously.

The Hong Kong dollar touches three-month low of 7.7478 to the U.S. dollar as local interest rates continued to soften on offers from the Hong Kong Monetary Authority.

The New Zealand dollar extended its losses to well over a U.S. cent after the central bank shocked the market by cutting interest rates by a much larger than expected 150 basis points and signaled further monetary easing in the quarters ahead.

Reserve Bank governor Don Brash said the outlook for Asia had deteriorated significantly since the bank's last forecast in December and the larger rate cut should keep inflation near the center of its target range (0-3 percent) and reduce risks of a sharp decline in economic activity.

The Australian dollar slid half a cent in sympathy with the slump in the New Zealand dollar and yen.