Asian monies up, dominated by yuan, Hong Kong dollar
Asian monies up, dominated by yuan, Hong Kong dollar
Dow Jones, Kuala Lumpur
Asian currencies rose further, with some setting new highs in spot trading Tuesday, while the Hong Kong dollar and China yuan soared in the offshore forward markets, as participants continued to react to the weekend call by the Group of Seven industrialized nations for more flexible exchange rates.
Few central banks ventured out, probably deciding it would be a futile exercise to try and reverse the strong optimism surrounding Asian currencies.
The Asian markets usually track movements in the Japanese yen, but with the country on holiday, participants said that the region focused on movements in the Hong Kong dollar instead.
Reflecting the widespread expectation for the Hong Kong dollar to rise in the spot market over the next year, the Hong Kong dollar forward premium moved into a discount, the first reversal since October 2001. In overnight trade in the spot market, the exchange rate sank to around HK$7.7450 to the U.S. dollar, well below the HK$7.780 guaranteed by the 20-year-old peg.
"It is much more unusual is to see spot trading well below the peg, and it is going to be interesting to see how Hong Kong deals with that. It's definitely worth watching," Singapore-based David Simmonds, Senior Emerging Markets Strategist for Asia at The Royal Bank of Scotland, said.
However, he dismissed any speculation that Hong Kong could revalue its peg. "I think it is taking the G-7 statement too far to consider Hong Kong as a revaluation candidate," he added.
Earlier in the day, the Hong Kong Monetary Authority responded to overnight strengthening in the Hong Kong dollar by reiterating its 20-year-old commitment to a fixed exchange rate against the U.S. dollar, and bought US$60 million on Tuesday morning to help stabilize it.
"We are fully committed to maintaining the linked exchange rate system of Hong Kong," an HKMA spokesman said. "It is the lynchpin of Hong Kong's monetary and financial stability and an important factor in Hong Kong's economic success."
At the end of the day, the one-year forward was quoted at a discount of 120-80, compared with a 18-28 premium Monday.
Meanwhile, offshore nondeliverable China yuan forward discounts also reached new records in one of its most volatile sessions, even though the onshore spot rate rose only marginally.
The one-year dollar-yuan NDF traded at a record discount, reaching 3,650 and 3,500 in the afternoon session, but it was difficult to confirm the lowest trading level. Those discounts indicate some speculators expect the dollar to weaken to 7.9122 yuan in one year, representing a 4.6 percent appreciation in the value of the yuan from Tuesday's spot rate. The previous record discount, set on Monday, was 2,650.
In Taiwan, the New Taiwan dollar closed at a new 13-month high against its U.S. counterpart Tuesday. The U.S. dollar closed at NT$33.735, down from NT$33.805 on Monday, and at its lowest level since Aug. 14, 2002.
In South Korea, Park Bong-Kyu, deputy minister for trade and investment policy at the Ministry of Commerce, Industry and Commerce, said the government was "concerned about the changes in the foreign exchange rate. A sharp drop in the (dollar-won) exchange rate would have a negative impact on the economy."
At a time when domestic demand is sluggish, South Korea's economy depends on exports more than ever, Park said. If the dollar stays below 1,170 won, 85 percent of the exporters will lose money, he cautioned.
The government "took smoothing operations in the market through state-run bank at around 1150 level," a dealer at UBS Warburg said, adding that the dollar buying wasn't strong, barely supporting the dollar at that level.
The dollar closed at 1150.1 won, its lowest level since Nov. 17, 2000 when it closed at 1,141.8 won.
Meanwhile, Southeast Asian currencies shared less of the market limelight.
The Singapore dollar was stronger late Tuesday. Around 0800 GMT, the U.S. dollar was quoted at S$1.7305, down from S$1.7325 late in Asia Monday.
Despite the gains, interest to trade the Singapore dollar appeared limited, dealers said, with some investors viewing the rise as overdone, given the unclear outlook for the domestic economy.
"The Singapore dollar is a bit of a laggard, there is a feeling that Singapore isn't going to lead the charge in Asia," Simmonds added.
The Thai baht was trading unchanged late Tuesday, at a 38- month high of 39.985 baht to the dollar.
Earlier Tuesday, Thai Prime Minister Thaksin Shinawatra said the baht's recent appreciation was supported by economic fundamentals and wouldn't harm exports. He also said there is further room for the baht to appreciate without hurting the country's large trade surplus.
Thaksin said a level of around 40.50 baht to the dollar was good for exports, noting that the baht is still weaker than its pre-crisis level of 25 baht to the dollar.
In the Philippines, the dollar ended at its intraday low of 54.930 pesos on the Philippine Dealing System, its lowest since ending at 54.755 pesos on Sept. 3. It closed at 55.070 pesos Monday.
Lingering political concerns ahead of the May 2004 presidential elections and economic worries amid weakening balance of payments continue to cap the peso's gains, traders said. The dollar is expected to move within a range of 54.850 pesos to 55.000 pesos Wednesday.
The dollar closed at 8,415 to Indonesia's rupiah, down from a close Friday at Rp8,465. The local foreign currency market was closed Monday for a public holiday. Dealers expect the dollar to trade between Rp8,380 and Rp8,460 Wednesday.