Asian currencies strengthen despite intervention fears

Asian currencies strengthen despite intervention fears

HONG KONG (Dow Jones): Asian bulls emerged mostly victorious
from a psychological tug of war Thursday, overcoming market fears
of dollar-supportive intervention by the Bank of Japan to bid up
regional currencies.

Only the South Korean won ended the day down - after the Bank
of Korea intervened in the Seoul market - buying U.S. dollars
against the won in the latest round of the government's long-
running struggle to maintain the local currency's
competitiveness.

Elsewhere in Asia, regional currencies finished the day
higher, boosted by foreign investment flows into local stock
markets from equity managers heartened by benign U.S. inflation
data.

Gains were tempered, however, by fears regional currencies
would be dragged lower should the BOJ reenter the foreign
exchange market in a repeat of its action Monday when it was
estimated to have bought around US$10 billion in an effort to
weaken the yen.

"Fundamentally the pressure is there for the regional
currencies to strengthen, but for the moment the threat of Bank
of Japan intervention is providing psychological support for the
dollar," explained Andrew Fung, treasury economist at Standard
Chartered in Singapore.

Although a noticeable influence Thursday, fear of the BOJ is
unlikely to damp market enthusiasm for Asian regional currencies
for long.

"Some of the regional currencies are fundamentally very well
supported, and are likely to see further nominal appreciation in
the near term," said Citibank currency strategist, David
Simmonds, who named the won, the New Taiwan dollar and the
Philippine peso as those most likely to strengthen from current
levels.

How much they can rise depends largely on the extent to which
the local monetary authorities in Seoul, Taipei and Manila are
prepared to see their currencies appreciate on a trade-weighted
basis.

The Bank of Korea made its position plain Thursday, buying
U.S. dollars through local commercial banks to force the won
sharply lower on the day. By the end of the local session, the
U.S. dollar had been pushed up to 1,167.00 won, compared with
1,163.20 won at Wednesday's close.

The central bank's action follows nearly two months of overt
dollar-buying by Korean state-owned banks. But despite the
authorities' concerted attempts to counter won-supportive trade
and investment flows, most analysts still believe the Korean
currency is set to head higher.

"As in Taiwan, I think there is a tacit recognition that the
economic fundamentals must be allowed their head," said Simmonds
at Citibank. "I now see the central bank as smoothing the won's
appreciation, rather than as targeting a weaker currency."

In Taiwan the local currency pressed higher Thursday, lifted
by buoyant equity market sentiment to retest the four-month peak
reached Tuesday.

At the close of local trading, the U.S. dollar was quoted at
NT$32.252, down from NT$32.374 at the end of Wednesday's session.

The Philippine peso also ended the day higher in response to
healthy buying interest from foreign portfolio investors, as well
as from offshore players in search of favorable yields. At the
end of trading on the Philippine Dealing System, the U.S. dollar
was at 37.745 pesos, down from 37.790 pesos at Wednesday's close.

Elsewhere in the region, both the Singapore dollar and the
Thai baht ended Asian trading hours higher, in line with the
general trend. Toward the end of interbank trading, the U.S.
dollar was quoted at S$1.7035, down from S$1.7095 the day before.
Against the baht, the U.S. currency was at 36.8745 baht, down
from 36.9600 baht the previous day.

The Indonesian rupiah, however, sounded a discordant note.
Although it managed to edge higher from levels seen late
Wednesday, the rupiah failed to maintain the strong upward
momentum seen in recent days, held back by profit-taking on short
dollar positions.

Late in Asian trading the U.S. dollar was at Rp 7,280, down
just a fraction from Rp 7,290 the day before.

"The Rp 7,000 level could prove a tough nut to crack in the
next few days," said Fung at Standard Chartered, explaining that
doubts were beginning to erode the market optimism seen
immediately after last week's parliamentary election.

"People are beginning to realize that it will not all be plain
sailing. A big question mark hangs over Megawati's ability to
attract enough support to form a coalition," he added, referring
to Megawati Soekarnoputri, the leader of Indonesia's foremost
opposition party that is currently leading in the ongoing poll
count.