Asian currencies mixed late, Indonesia concerns dominate

Asian currencies mixed late, Indonesia concerns dominate

SINGAPORE (Dow Jones): Asian currencies were mixed late Friday, as U.S. Federal Reserve Chairman Alan Greenspan's relatively benign testimony overnight did little to neutralize concerns over heightened political tensions in Indonesia, dealers said.

However, the Indonesian currency took a breather Friday in relatively calm trading, following its giddy gyrations earlier this week, and was flat from Thursday. The rupiah's steady undertone kept the other Southeast Asian currencies, which were mixed, wedged in narrow trading ranges.

"Everybody's taking stock of what happened this week," said a dealer at a European bank. "Nobody wants to stick their neck out to do anything."

In North Asia, intervention by their respective central banks had divergent effects on the South Korean won and the New Taiwan dollar. While the South Korean central bank - worried about the relative strength of the won - pushed the local currency lower, Taiwan's central bank defended the local currency, pushing it higher against the U.S. unit, dealers said.

Greenspan's seemingly upbeat outlook for sustainable growth and contained inflation in the U.S. has reduced the odds of a Fed tightening next month, keeping the interest-rate sensitive Philippine peso buoyed. Other Asian currencies, however, showed little reaction to his comments as domestic concerns in Asia overruled.

Many analysts say they aren't prepared to predict that U.S. interest rates will be kept on hold when the Federal Open Market Committee meets Aug. 22. Analysts say they are still waiting for the release of several key U.S. economic data in the next few weeks.

"Greenspan sounded dovish, but he's not," says Philip Wee, treasury economist at Standard Chartered Bank. "He's still concerned about the inflationary risk from the labor market."

Delivering a semiannual report on monetary policy to the Senate Banking Committee Thursday, Greenspan didn't rule out the prospect of another interest rate increase this year. However, his warnings about inflation risks were considerably less dire than they were just five months ago.

Nonetheless, Greenspan warned that "it is much too soon" to conclude that inflation has been tamed. He said that tight labor markets and rising energy prices could still stoke inflation.

Analysts said the rupiah, rather than U.S. rates, is expected to continue dictating the direction of Southeast Asian currencies in the coming weeks, especially after President Abdurrahman Wahid's defiance of parliament Thursday renewed concerns over his hold on power.

Wahid's refusal to submit to parliament's questioning Thursday over the dismissal of two senior ministers earlier this year has set the stage for a confrontation during the mid-August meeting of the People's Consultative Assembly, or MPR, the only body that can unseat him, analysts said.

Despite the political anxiety, the Indonesian rupiah consolidated in range-bound trading amid concerns local state banks would defend it around Rp 9,150 to Rp 9,200 to the dollar.

Several major offshore banks are also planning to bail out of their long dollar positions, dealers said.

Although the U.S. currency could continue to correct lower, most analysts expect the dollar to rebound back to Rp 9,400 to Rp 9,500 levels ahead of the August MPR meeting. The rupiah will likely drag the other Southeast Asian currencies lower, analysts said.

In Jakarta, the rupiah closed lower at Rp 9,025 per dollar in late trading on Friday compared to Rp 8,890 as the currency market awaited for the President's response to the Thursday questioning by the House of Representatives over the recent sacking of two high profile ministers.

Investors were awaiting Wahid's written response later Friday to parliament's questions over the dismissal of the two ministers.

Greenspan's testimony supported the Philippine peso Friday. The dollar was at 44.400 pesos, down from Thursday's close of 44.585 pesos.

In Thailand, the dollar was at 40.315 baht, up from 40.255 baht late Thursday.

Against the Singapore dollar, the U.S. currency was at S$1.7469, little changed from S$1.7462 late Thursday.

In Taipei, spurred probably by the adverse impact of foreign equity outflows on the local currency, the central bank intervened aggressively, causing a retreat in the U.S. currency vis-a-vis the New Taiwan dollar.

The U.S. dollar closed at NT$31.019, down from Thursday's close of NT$31.086 and below its intraday high of NT$31.110 Friday.

In contrast, dollar-buying by the government-linked Korea Development Bank - after the government recently expressed its concern over the relative strength of the local currency - weighed on the South Korean won.

The dollar closed at 1,112.70 won, up from Thursday's close of 1,111.60 won.