Asian monies drift sideways, won and Taiwan dollar rally

Asian monies drift sideways, won and Taiwan dollar rally

SINGAPORE (Dow Jones): Southeast Asian currencies ended Asian hours mixed against the U.S. dollar Wednesday, as trading in regional markets was slow to restart after Tuesday's holidays.

Unsure exactly how Brazil's floating of the real, which was confirmed late Monday, will affect medium-term sentiment toward Asia's crisis-hit economies, traders and investors were reluctant to build fresh positions in the regional markets.

As a result, Southeast Asian markets drifted sideways, leaving the Singapore dollar a touch higher on the day, while the Thai baht, the Indonesian rupiah and the Philippine peso all finished a fraction weaker.

In North Asia, however, the South Korean won and the New Taiwan dollar rallied strongly, prompting Steven Xu, treasury economist at Standard Chartered Bank in Hong Kong, to forecast that the two currencies will soon retest long-term highs against the U.S. dollar.

"Brazil's devaluation will not be a one-day event," he warned. "Despite the impressive damage-control measures being taken, over the coming weeks the dollar will be dragged lower against the yen, which will benefit both the won and the New Taiwan dollar."

Even following Fitch IBCA's decision Tuesday to upgrade South Korea's sovereign debt rating to investment grade, the market is still overpricing Korean risk, Xu argued.

As the risk premium being placed on Korean investments shrinks to a more reasonable level, says Xu, so the won will strengthen, with the U.S. dollar falling back toward the 13-month low of 1.147.50 won it hit Jan. 7.

At the close of domestic trading Wednesday, the U.S. dollar was quoted at 1,165.50 won, compared with 1,175 at Tuesday's close.

Although Ron Leven, regional currency strategist at J.P. Morgan in Singapore, agrees that the won is likely to test fresh highs in the near future, he is less certain about the New Taiwan dollar's chances of appreciating much further.

"Taiwan is more problematical. The government has been very aggressive about keeping the currency and interest rates down," he said.

Nevertheless, the New Taiwan dollar was also stronger against the U.S. dollar Wednesday, with the U.S. currency ending domestic trading at NT$32.263, down from NT$32.291 at Tuesday's close.

In the longer term, however, the Taiwan currency remains vulnerable to slowing global electronics demand. And as a major investor and exporter, Taiwan is also exposed to fears that China will be forced to devalue the yuan, abandoning its unofficial peg of 8.28 yuan to the U.S. dollar.

Those fears have intensified in the wake of Brazil's flotation of the real.

Although many market players favor the Philippine currency over the new Taiwan dollar, the peso failed to hold its own on Wednesday, slipping back against the U.S. dollar.

At the close of trading on the Philippine Dealing System, the U.S. currency was at 38.37 pesos, up from 38.36 at Tuesday's close.

The Thai baht also eased slightly, with the U.S. dollar rising to end Asian interbank trading at 36.5100 baht, up from 36.4650 late Tuesday.

The rupiah, too, ended weaker, pushed lower by U.S. dollar- buying interest from Singapore-based players, although with the Jakarta market closed Wednesday for a holiday, volumes were extremely light.

As trading in Singapore ended, the U.S. dollar was quoted at Rp 8,470, up from Rp 8,355 late on Tuesday.

While currencies elsewhere in Southeast Asia eased against the U.S. dollar, the Singapore dollar pushed a touch higher, although most traders complained the market was range-bound.

Late in Asian trading hours, the U.S. currency was quoted at S$1.6800, down a fraction from S$1.6845 toward the end of Tuesday's thin holiday trading.