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.