Asian currencies soar as funds flow

Asian currencies soar as funds flow

HONG KONG (Dow Jones): The Korean won and the New Taiwan dollar each surged to their highest levels in over two years Tuesday, in a banner day of trading for Asian currencies.

In other regional markets the Singapore dollar climbed to its strongest in a year, while the Thai baht hit a five-month high and the Philippine peso reached its highest in nearly four months.

Only the Indonesian rupiah was left floundering, closing just slightly higher on the day, while other regional currencies enjoyed a powerful New Year rally driven largely by inflowing investor funds.

"There is a feeling of euphoria out there," said Patrick Bennett, foreign exchange strategist at Warburg Dillon Read in Singapore.

Investors who had held off buying Asian currencies afraid of widespread computer problems at the New Year were now rushing to allocate assets to regional markets following a largely trouble- free millennial calendar change, Bennett explained.

"There is a fear that they will miss the boat if they don't get in now," he said.

Illiquidity exaggerated the extent of the runup, especially in markets in Seoul, Taipei and Bangkok, for which Tuesday was the first day of trading this year. With many banks still to resume making markets in regional currencies, it took only moderate buying interest to fuel the sharp rally.

The rapid speed of the gains seen Tuesday led many market participants to caution that the pace of the current appreciation will prove unsustainable over the longer run.

"Today's move is overdone," said Chia Hsin-Li, Asian currency strategist at J.P. Morgan in Singapore. "It's the first real day of trading, and everyone is just getting a little bit too excited.

That excitement clearly showed through in trading in North Asian markets, where currency investors brushed aside threats of intervention from the Korean finance ministry to buy the won up to its highest level since November 1997.

Aggressive dollar-buying by state-run Korea Development Bank proved insufficient to stem the tide, as won purchases pushed the dollar down to finish the session at 1,122.50 won, only just above its intraday low at 1,122 won and 1.4 percent below the 1999 close of 1,138 won recorded last Thursday.

Heavy official intervention also failed to block a rapid appreciation of the New Taiwan dollar, as investors pumped funds into Taipei's soaring equity market. Dealers in Taiwan estimated that the central bank had bought as much as $400 million in an attempt to support the U.S. currency on a day when dealing volumes surpassed $1 billion.

By the close of domestic trading in Taipei, central bank buying had lifted the U.S. currency off its earlier intraday low of NT$30.501 to close at NT$30.602. Even at that level, however, the U.S. currency was 2.5% below last Thursday's close of NT$31.395 and at its lowest closing level since early November 1997.

Investor optimism was also credited with driving Southeast Asian currencies sharply higher Tuesday.

U.S. investment banks were among the major buyers of the Singapore dollar, according to dealers in the island republic, as the local currency was pushed up around 0.7 percent to reach its strongest level in over a year.

Traders warned, however, that the Monetary Authority of Singapore was unlikely to stand aside and permit such a rapid appreciation of the currency, and toward the end of Asian dealing hours the Singapore dollar surrendered some of its gains, with the U.S. currency lifting off its earlier low of S$1.6483 to trade at S$1.6505. Late Monday the U.S. dollar had been quoted at S$1.6600.

Elsewhere the Thai baht climbed to its highest level since August while the Philippine peso reached its strongest level since September on reasonably heavy volumes of $331 million.

Late in Asia the dollar was quoted against the baht at 36.8450 baht, little changed from levels seen offshore late Monday, but down steeply from 37.4500 baht late Thursday, the last day of trading in Bangkok in 1999.

On the Philippine Dealing System, the U.S. currency closed against the peso at 39.770 pesos, down from 39.980 pesos the day before.

Only the rupiah failed to participate in the general rally as speculation over a possible cabinet reshuffle, reports of further regional violence damped sentiment toward the currency, despite a strong rally in local stocks.

Late in Asia, the dollar was quoted against the rupiah at Rp 7,045, down from Rp 7,070 late Monday.