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.