Central banks, hedge funds to stem rising Asian currencies
Central banks, hedge funds to stem rising Asian currencies
SINGAPORE (AFP): Asia's rising currencies are expected to
consolidate the coming week with central banks seeking to cap
their upside and hedge funds betting the regional units will
fall, dealers and analysts say.
Most of the regional currencies, except notably for the
Singapore dollar, had appreciated on the back of a robust yen
last week, when at least two central banks were reportedly in the
market selling their own currencies.
"We can expect regional currencies to weaken this week," said
Andy Tan, general manager of U.S. research house Standard and
Poor's MMS in Singapore.
Tan said talk was that hedge funds had quietly taken positions
against regional currencies to capitalize on the flush liquidity
in the market.
"They are probably expecting that Asian currencies have some
room to fall," he said. "This is among the market concerns the
coming week."
Dealers say among the currencies linked to the hedge funds are
the Singapore dollar, Thai baht, the Australian dollar and the
Hong Kong dollar.
Hedge funds were blamed for the Asian currency crisis that
broke out in mid-1997 and lead to financial turmoil and slammed
the brakes on the region's rapid economic growth.
Tan said foreign exchange markets would closely monitor a
meeting of the Basle-based Bank of International Settlements
(BIS), the central bank of central banks, in Hong Kong on Monday.
Jacqueline Ong, regional economist with British financial
house IDEA here, said the market tendency should remain to sell
the U.S. dollar as it rallies but she added that the downside for
the greenback seemed to be heavily protected around 110 against
the yen.
"The market is pretty fearful that beyond that there could be
BoJ (Bank of Japan, the central bank) intervention," she said.
The yen, which has surged nearly 35 percent against the U.S.
dollar over the past five months, closed at 110.98 against the
greenback in New York on Friday, sharply higher than the previous
week's close of 113.52.
"Given that scenario, the upside for regionals is controlled
at present except for the likes of the Philippine peso and the
South Korean won which have an upside scope," Ong said.
Desmond Supple, Singapore-based head of research for Asian
currencies at Barclays Bank, said Asian central banks were
expected to cap the strength of their currencies over the coming
weeks.
"Rising foreign exchange reserves as a result of intervention
will help counteract the loss of reserves when many Asian
countries begin to repay IMF loans," he said.
Loans borrowed from the International Monetary Fund (IMF) were
based on U.S. dollars, which the central banks would mop up from
the market through intervention by selling their own currencies
and hence weakening them, dealers say.
The Singapore dollar closed Friday at 1.6724 from its previous
week's 1.6600, the peso at 38.04 from 39.14, the Thai baht at
36.25 from 36.75, the Taiwan dollar at 32.158 from 32.215, the
won at 1,175 from 1,191.5 and the Indonesian rupiah at 8,000 from
7,950.
Supple said that apart from the strong yen, another factor
supporting regional currencies at present was the market's
tendency to price-in a sustained economic recovery for the
recession-hit region and associated near-term upgrading of some
countries' ratings towards investment grade.
This followed continued signs the region's real output was
recovering, and the foreign exchange reserves were rising to
moderate previous sovereign risk concerns, he said.
"However, while we expect the market to continue to focus on
favorable headline numbers over the short-term, and while the
rally created by lower (interest) rates and a stronger yen
discourages closer inspection of economic fundamentals, we remain
very wary," Supple said.