Asian currencies up but lag behind yen's ascent

Asian currencies up but lag behind yen's ascent

HONG KONG (Dow Jones): Asian currencies followed the yen higher Friday, but gains were limited by sales from market players looking to exit long positions in the regionals against the Japanese currency.

The U.S. dollar's slide against the yen during European and U.S. trading hours Thursday did boost regional currencies to a certain extent.

In Southeast Asia the Singapore dollar and the Thai baht finished noticeably stronger, while in North Asia both the New Taiwan dollar and the South Korean won edged higher.

But dealers said the regional currencies appreciated less than might have been expected, held back by the liquidation of long positions established last week against the yen.

"There are people closing out long dollar/yen positions and short dollar/Singapore dollar, short dollar/baht and short dollar/rupiah positions," said a regional currencies trader at a U.S. bank in Singapore, explaining why the regional currencies failed to keep pace with the yen's climb against the U.S. dollar.

But by late in Asian trading Friday, demand to buy the dollar against the regional currencies had petered out, and the U.S. currency slipped back.

Toward the end of local hours the U.S. dollar was quoted against the Singapore dollar at S$1.7251, down from S$1.7317 the previous day.

Against the Thai baht, the U.S. dollar was at 37.0650 baht, down from 37.1100 baht late in Asia on Thursday.

The recent breakdown of the long-standing correlation between regional currencies and the yen has left traders with little idea which direction markets are likely to take over the coming week.

"You can't take the yen as a guideline any more," complained one dealer, adding that market players would be closely watching local central banks for their trading cues.

"The important thing for the authorities around the region is to stabilize their currencies," he said. While central bankers may be prepared to tolerate moves of a couple of percentage points either side of current exchange rates, he argued that they would intervene to check any extreme fluctuations.

Other dealers agreed, saying that they would be wary of indirect intervention by the Monetary Authority of Singapore should the U.S. dollar fall to levels approaching S$1.7150. Equally, the authority would be likely to check any rapid appreciation toward S$1.7350, they added.

The baht is thought likely to be similarly range-bound in coming sessions, with the U.S. dollar continuing to trade in a 37.05 baht to 37.15 baht.

Fear of action by local monetary authorities is also expected to play a significant role in other regional currency markets over the coming weeks.

Although dealers say market participants are becoming increasingly nervous ahead of Indonesia's parliamentary elections on June 7, the rupiah has remained largely stable against the U.S. dollar.

Any upward pressure on the U.S. currency is being contained by sizable offers between Rp 8,150 and Rp 8,200, leading traders to conclude that Bank Indonesia is determined to limit the dollar's potential gains against the rupiah in the run-up to the poll.

Late in Asian trading Friday, the dollar was quoted at Rp 8,125, up from Rp 8,105 late Thursday.

Against the Philippine peso, the dollar is thought likely to hold firm above the support at 38.000 pesos, as the market speculates that the current round of interest rate cuts may be nearing its end.

Without the incentive of interest rate cut-induced capital gains, foreign investors will have less incentive to invest in Philippine assets, argue traders.

At Friday's close, the dollar was quoted at 38.021 pesos, down from 38.065 pesos the previous day.

In North Asia, the won continued to grind higher on positive trade flows, despite dollar purchases by state-owned banks. At the local close, the U.S. currency was quoted at 1,186.20 won, down from 1,188.30 won Thursday.

Against the Taiwanese currency, the U.S. dollar closed at NT$32.760, down from NT$32.772 the day before, following heavy central bank intervention to dampen market volatility.