Regional currencies continue to track yen

Regional currencies continue to track yen

SINGAPORE (Dow Jones): Southeast Asian currencies fell during
Asian trading hours yesterday to finish the week down across the
board against the U.S. dollar.

For the fourth week running regional currencies faithfully
tracked the yen. Throughout the week Southeast Asia's currencies
were edged lower as market participants sought every opportunity
to buy the U.S. dollar.

Traders and analysts alike are convinced the U.S. currency is
destined to go higher despite their constant fear that the U.S.
Federal Reserve may intervene to support the yen, also boosting
regional currencies.

Whether the Fed intervenes or not, most market participants
see the regional currencies' yen-tracking trading pattern being
repeated over the coming weeks.

"The regionals are still trading very much along with the
yen," said a trader at a UK bank in Singapore.

"What we will see is a fast market down and a slow market up
again (for the U.S. dollar against regional currencies). The U.S.
funds and investment banks are very, very long the dollar, so if
there is any intervention, there will be a bottleneck as everyone
rushes for the exit. But I don't see the dollar collapsing,
because every time it drops, straight away there are a lot of
buyers," he explained.

Although analysts are increasingly questioning the economic
rationale for Southeast Asian currencies' tight correlation to
the yen, few see the relationship breaking down any time soon.

"It's wrong that the regionals are just following the yen. The
rally after the Fed's (June 17) intervention was entirely
inappropriate. Fundamentally nothing changed in Southeast Asia,"
said Patrick Bennett, foreign exchange strategist at SBC Warburg
Dillon Read in Singapore.

The danger now, argues Bennett, is that a repeat of the
Federal Reserve's action will raise the specter of moral hazard
in Asia.

Intervention to support the yen that also strengthens Asian
regional currencies may relieve the pressure on Southeast Asian
governments to pursue crucial economic restructuring programs, he
contends.

Late in Asia on Friday the U.S. dollar was quoted at 4.0550
Malaysian ringgit, down from its intraday high of 4.0710 ringgit
on pre-weekend liquidation of long positions, but well above
3.9475 late on Thursday. At the end of the previous week's
trading the U.S. dollar was at 3.9330 ringgit.

The U.S. dollar was also quoted at 41.6050 Thai baht, up from
41.1750 baht the previous day and 41.3800 baht a week before.

Against the Singapore dollar, the U.S. currency was at
S$1.6740, up from S$1.6580 late Thursday and above S$1.6500 last
Friday.