Regional currencies bank in trouble

Regional currencies bank in trouble

SINGAPORE (Dow Jones): Fresh fears that China may devalue the
yuan sparked a renewed sell-off in Southeast Asian currencies on
Monday, pushing both the Singapore dollar and the Indonesian
rupiah to their lowest levels against the U.S. dollar since early
October.

North Asian currencies, too, were hit hard, as foreign
exchange traders rushed to buy U.S. dollars in reaction to an
article in Sunday's China Daily newspaper that appeared to favor
devaluation. As the Taipei stock market slid by 3 percent, the
new Taiwan dollar dropped to its lowest level in over six weeks.

Although a chorus of analysts, backed up by at least one
senior Chinese official, dismissed as baseless market worries
that Brazil's recent flotation of the real may force the People's
Republic to devalue its currency in the near future, their
reassurances came too late to prevent sharp falls in Asian
regional currencies early in the trading day.

"All this talk that contagion from Brazil may have an effect
on the yuan is a load of rubbish," declared Chua Soon Hock, chief
strategist at Sanwa Bank in Singapore, echoing the prevalent
opinion among Asian economists.

Unlike the real, they point out, the yuan is not freely
convertible on the capital account, a restriction which gives the
Chinese government nearly total control of the yuan exchange
rate.

Although, like other Asian countries, China is suffering
economically, $145 billion in foreign exchange reserves and a
trade surplus of $44 billion mean the Beijing government is under
little immediate pressure to realign its informal peg to the U.S.
dollar.

That association led foreign exchange traders throughout Asia
to buy U.S. dollars as trading got under way early on Monday
morning.

As sentiment toward Asia turned bearish, the U.S. dollar rose
to an intraday high of S$1.6900 against the Singapore dollar.
Although the U.S. currency slipped back slightly later to end
local interbank trading at S$1.6880, it was still well up from
its level of S$1.6745 late on Friday in Asia.

Against the rupiah, the U.S. currency rose to hit a high of Rp
9,400, up from Rp 8,920 late on Friday.

The U.S. dollar also ended up against the Thai baht. Although
the U.S. currency finished Asian interbank trading down from its
earlier high of 37.1000 baht, at 36.9250 it was still up from
Friday's close at 36.7500.

The U.S. dollar also finished higher against the Philippine
peso. At the close of domestic trading, the U.S. currency ended
at 38.78 pesos, up from 38.68 at Friday's close.

Although analysts recognized that sentiment towards Asian
currencies has taken a turn for the worse, they stress that any
renewed depreciation will be far milder than that seen in the
second half of 1997 and the first half of 1998.

In contrast to 1997, when the economic crisis first erupted in
Asia, regional currencies are now cushioned by sizable current
account surpluses, while their underlying economies are far less
dependent on volatile short-term capital flows for their funding
needs.

In north Asian markets, the continent-wide U.S. dollar buying
spree pushed the new Taiwan dollar to its lowest level in six
weeks in early trading. After hitting a high of NT$32.368,
however, the U.S. dollar sank back a touch on central bank
selling to finish the day at NT$32.349, up from Friday's close at
NT$32.297.

Against the South Korean won, the U.S. dollar also weakened
from its early high, as local corporations took the dollar's
strength as a selling opportunity. At the close of local dealing
the U.S. currency was at 1,180 won, flat compared with Friday's
level.