SE Asian currencies fall but recover

SE Asian currencies fall but recover

SINGAPORE (Dow Jones): Southeast Asian currencies are weaker
across the board late in Asian trading yesterday compared with
levels seen late Friday, but have recovered from lows against the
U.S. dollar reached yesterday morning.

Regional currencies moved sharply lower early yesterday after
the U.S. dollar surged against the Japanese yen, reportedly on
strong U.S. dollar interest from U.S. investment banks and a
large U.S. insurance company.

The dollar broke above the psychologically important 140 yen
level as the market opened in Tokyo, triggering stop-loss buying
all the way up to 140.71, from 139.78 yen immediately before the
big move.

The yen's retreat dragged regional currencies down in its
wake. The U.S. dollar broke through Singapore dollar resistance
at S$1.7000, and smashed through resistance in the Malaysian
ringgit at 4.000 ringgit (MYR).

Monday afternoon, traders were looking to London for
direction, according to Daniel Lian, head of Asian markets
research for ANZ Investment Bank in Singapore.

"There was pretty choppy trading in the morning, but when
London opened and didn't take the yen down further, regional
currencies consolidated," he said.

Lian says that traders in the interbank market are watching
the yen closely for cues on trading regional currencies.

"They are only willing to pressure the regionals if dollar/yen
is on their side. Otherwise the cost of a short position is too
much to maintain."

It is all up to the yen. If it continues to go, then so will
Southeast Asian currencies. If the yen turns around, regional
currencies will too," Lian said.

He said that large hedge funds had placed short positions
against regional currencies several weeks ago, before the crisis
in Indonesia forced President Soeharto from power and sent
regional currency markets into a tailspin. Interbank traders,
however, are not sitting on such old short positions.

Using the ringgit as an example, Lian said that forward
premiums (which can be used as a measure of the price of shorting
a currency) two months ago implied a depreciation of about 15
percent. Now, the six-month forward rate implies a depreciation
of 25 percent-26 percent, making it much more expensive to place
a new short position against the ringgit, Lian said.

In the afternoon, the U.S. dollar was quoted at 3.9975
ringgit, up from 3.9870 ringgit late Friday in Asia.

Fears

Nicholas Brooks, the regional economist for Southeast Asia for
Banco Santander, said regional currencies are trading on market
players' fears of how far the yen will drop, as well as their
fears about where it will turn around.

Brooks said that dealers will be watching the meeting of the
deputy finance ministers of the Group of Seven industrialized
nations in Paris on Tuesday.

"People sense that not much is going to be done at the G-7
meeting, but the question is if they will make stronger comments
than they had intended because of the scale of the yen's recent
depreciation," he said.

The Australian dollar plunged towards an all-time low
yesterday after U.S. and other hedge funds renewed their attack,
forcing the currency through the crucial 60 U.S. cent level.

Dealers and economists said the funds were using the
Australian currency as a substitute for attacking Asian
currencies that were too illiquid to sell.

They said the U.S. dollar's rise past 140 yen yesterday
triggered the latest wave in the assault, which has pushed the
Australian dollar down nine percent in the past month.

The Australian dollar stood at U.S.$0.5970/80 at 2.45 p.m.
(0445 GMT), down from its U.S.$0.6080 open in New Zealand and
well below U.S.$0.6550 on May 1.

It was also below its previous 12-year low of U.S.$0.5985
reached in late Friday trade in New York.

The Australian dollar touched U.S.$0.5959 in late July 1986
after then-Prime Minister Paul Keating's predicted Australia
could become a "banana republic" because of a blowout in its
current account deficit.