Asian currencies lifted off lows by position squaring

Asian currencies lifted off lows by position squaring

HONG KONG (Dow Jones): Asian currencies rallied Friday, as the liquidation of long dollar positions ahead of the weekend relieved the pressure on regional markets.

Despite the recovery, market players remained leery of Asian currencies in general, predicting that the dollar would remain strong into the coming week.

"I would be cautious about putting on any new long Asian currency trades at this time," said Vincent Low, foreign exchange and interest rate strategist at Merrill Lynch in Singapore.

With the extent of future U.S. interest rate increases still uncertain, investors are showing an increased aversion to risk and are scaling back their exposure to Asian markets, dragging regional currencies off their recent highs, said Low.

Although the Asian recovery story remains firmly in place, with regional economies boasting strong growth rates and handsome trade surpluses, money managers will prefer to wait for a few more months until they are satisfied the U.S. Federal Reserve has completed its current round of tightening before rebuilding their allocations to Asia, he explained.

While the short- to medium-term outlook for Asian markets is clouded, Asian trading Friday did see regional currencies strengthen from their earlier lows.

As the yen edged a touch higher, dealers fretted that perhaps the dollar had become overbought and sold the U.S. currency to reduce the risk on their books going into the weekend.

In North Asia the won regained most of the previous day's losses in heavy trading. Early trading saw the South Korean currency touch a fresh six-week low, when the dollar briefly rose to hit 1,145.00 won.

But by the end of Seoul dealings, dollar sales had pushed the U.S. currency back down to 1,136.60 won, well below Thursday's closing level of 1,140.50 won.

The New Taiwan dollar also ended higher Friday, thanks partly to intervention by the central bank, which is anxious to support the local currency during the current upsurge in political tensions between Taipei and Beijing.

At the close, the U.S. currency was trading against the New Taiwan dollar at NT$30.764, compared with NT$30.785 the previous day.

In Southeast Asia the Singapore dollar found support from pre- weekend position squaring.

With Singapore's recovery now well on course, analysts expected Friday's budget to focus on promoting economic growth over the longer term and predicted the budget speech, delivered after the close of local interbank dealing, would contain little to influence the exchange rate.

Toward the end of Asian trading, the U.S. currency was quoted against the Singapore dollar at S$1.7099, down from S$1.7134 the day before.

But with firm support seen at S$1.7080, dealers said the U.S. dollar is likely to test up toward the S$1.7150 level in the near term.

The Thai baht also made gains against the U.S. dollar, assisted by comments from the Thai finance minister indicating levels of nonperforming loans in the domestic banking system had fallen below the 30 percent level, well down from their 47 percent peak last year.

Late in Asia, the dollar was quoted at 37.980 baht, down from 37.190 baht Thursday. One trader forecast a short-term trading range of 37.800 baht-38.200 baht.

The rupiah ended slightly higher as market fears over the health of Indonesian President Abdurrahman Wahid calmed.

After hitting a high of Rp 7,535, the dollar eased back to end Asian trading at Rp 7,455, below Rp 7,485 late Thursday.

The Philippine Dealing System was closed Friday for a public holiday.