Asian currencies test long-term highs

Asian currencies test long-term highs

HONG KONG (Dow Jones): Asian currencies tested new long-term highs Tuesday, but most failed to sustain their gains and had fallen back again by the end of local trading hours.

In Southeast Asia early buying interest pushed the Singapore dollar to its highest level in over nine months, as U.S. dollar sales, executed primarily by U.S. investment banks, forced the U.S. currency as low as S$1.6550.

The Singapore dollar's rally was soon reversed, however, as talk of U.S. dollar purchases by the Monetary Authority of Singapore spurred a rash of U.S. dollar buying to cover short positions.

Most dealers were unsure whether the rumors of intervention were true, but few were prepared to run the risk of maintaining their short positions in the U.S. currency.

By late afternoon the U.S. dollar had stabilized, its rise capped above S$1.6700 by fresh offers from local market participants. Toward the end of Asian interbank trading the U.S. currency was quoted at S$1.6670, up from S$1.6611 late Monday.

Despite Tuesday's fall, most market participants still favor buying into the Singapore currency, believing that it is fundamentally undervalued and will appreciate over the longer term.

But a dealer at one U.S. bank warned that Singapore's currency could suffer in the coming months, citing newspaper reports suggesting that following October's Indonesian presidential election wealthy Indonesians may repatriate billions of dollars of flight capital currently stashed in Singapore.

News that the International Monetary Fund is prepared to resume lending to Indonesia following the official release of the auditor's report into the Bank Bali scandal failed significantly to boost the rupiah.

Late Tuesday in Asia the U.S. currency was quoted at Rp 6,730, down slightly from Rp 6,762 late the previous day.

Trading in the Thai baht followed a similar pattern, although transaction volumes were limited, according to dealers.

After being sold down through support at 38.5000 baht, the U.S. rallied on buying from Thai corporations, who pushed the U.S. currency higher again to 38.6850 baht toward the end of Asian dealing. Late Monday the dollar had been quoted at 38.5500 baht.

In North Asia both the won and the New Taiwan dollar continued to grind higher, supported by favorable trade and investment flows but with their gains limited by U.S. dollar buying from competitiveness-conscious governments.

In Seoul the won set a new six-week high as the U.S. dollar dropped to close at 1,193.30 won, down from 1,195.50 won at Monday's close.

In Taipei, the New Taiwan dollar edged fractionally higher, with the U.S. currency slipping to close at NT$31.728, compared to NT$31.731 the previous day.

With markets in Manila closed for a holiday, there was no trading in the Philippine peso Tuesday.