Asian currencies stronger in late trading

Asian currencies stronger in late trading

SINGAPORE (Dow Jones): Asian currencies were sharply stronger in late trading Friday, as U.S. dollar and yen-denominated investment flows seeped back into the region.

The start of the fourth business quarter - the second half of Japan's fiscal year - marked a sea change in capital flows, traders said, as hedged positions for yen-denominated debt payments were unwound and Japanese corporate, armed with a stronger yen, renewed direct investment across the region.

"There is no reason to hedge the yen positions now that debt payments have been satisfied, so people are cashing out of their long (U.S.) dollar and yen positions," said Jimmy Koh, regional economist at IDEA Global.com in Singapore.

Traders said the regional currency markets have also digested news of the now-contained nuclear accident in Japan, and are focusing on whether the Bank of Japan is prepared to increase market liquidity as the yen once again starts drifting toward Y100 to the U.S. dollar.

Japanese officials said during last weekend's meeting of finance ministers from the Group of Seven leading industrial nations that they were prepared to do just that if yen strength continued to be a factor.

At 0800 GMT, the U.S. dollar was trading at 105.87 yen, above 105.61 yen late Thursday in Asia, but well below 106.32 yen at 0000 GMT Friday - the level reached as a result of knee-jerk yen- selling when news of the nuclear accident reached the markets late Thursday.

Investors are now awaiting the release Monday of the quarterly Tankan survey of business sentiment in Japan and Tuesday's U.S. Federal Open Market Committee meeting, traders said.

A peaceful start to the meeting of Indonesia's highest legislative body Friday also prompted the liquidation of long U.S. dollar positions by offshore banks, pushing the U.S. dollar down more than 4 percent against the rupiah.

At 0800 GMT, the U.S. dollar was trading at Rp 7,985, well down from Rp 8,360 in late trading Thursday. The assembly now begins the task of choosing the next president and setting the nation on the unfamiliar path to democracy.

The release of strong economic data underpinned buoyant market sentiment. Falling food prices pushed the country's consumer price index down by 0.68 percent in September, leading to a year- on-year inflation rate of just 1.25 percent - the lowest level in 15 years.

But, "The market is still thin, still cautious; any shock to the system - financial, political, social - will quickly push the U.S. dollar higher," warned a currency strategist at a European bank in Singapore.

The U.S. dollar is also trading at 40.7050 Thai baht, down from 41.075 baht late Thursday in Asia. Traders said there is no reason for the U.S. dollar to remain strong against the baht now that yen-denominated debts have been satisfied, allowing hedged positions to be unwound.

Thailand's deputy prime minister, Supachai Panitchpakdi, said Friday that strong economic fundamentals should also continue to buoy the baht. He said the country's low inflation, consistent trade surpluses, substantial foreign exchange reserves and a rise in investment will support the currency.

Maya Pinto, regional economist at IDEA Global.com, expects the U.S. dollar to continue to languish against the baht.

On the Philippine dealing system, the U.S. dollar was trading at 40.7050 pesos, down from 40 pesos late Thursday.

In North Asia, the U.S. dollar is trading at 1,216 won, almost unchanged from 1,215.9 won late the previous day.

The U.S. dollar was also trading at NT$31.779, almost flat from NT31.778 late Thursday.

Desmond Supple, regional economist at Barclays Bank in Singapore, said the New Taiwan dollar has showed resistance to the financial aftershock of the recent earthquake.