SE Asian currencies higher against dollar

SE Asian currencies higher against dollar

SINGAPORE (Dow Jones): Southeast Asian currencies were shot higher against the U.S. dollar during Asian trading yesterday, propelled upward by a surge in the value of the yen.

Currencies across the region rose as Japanese threats of intervention to support the yen loosed a cascade of dollar selling, which forced the yen up through successive resistance levels, in turn triggering dollar sales against Southeast Asian currencies.

Despite the ferocity of the rally, however, few analysts or traders found any reason to believe that the dollar sell-off amounted to anything more than a phenomenon one described as a "dead cat bounce": a short-term correction on the U.S. dollar's upward path against Asian currencies.

"There is a lot of liquidation of long dollar positions going on. The Asian bears are being severely punished," said the head of foreign exchange trading at a Japanese bank in Singapore. "But fundamentally nothing has changed. I still believe the dollar is going higher," he added.

Some traders attributed the Asian rally to profit-taking by U.S. hedge funds. Having lost money heavily on their Russian assets as a result of Monday's ruble devaluation, the hedge funds were forced to liquidate their positions in Asian markets in order to cover their losses.

Once the position adjustments have been completed, they argued, the U.S. dollar will resume its upward trend.

The external risk factors posed by China and Japan are still there, and they are unlikely to go away soon," said Vincent Low, regional currency and fixed income strategist at Merrill Lynch in Singapore.

While Japan's banking crisis remains unresolved, and as long as the threat, however remote, that China will devalue the yuan overshadows regional markets, Southeast Asian currencies will still be vulnerable to renewed depreciation, argues Low.

Nevertheless, with the yen up sharply against the U.S. dollar and with pressure on the Hong Kong dollar and the yuan diffused by government intervention to support the Hong Kong stock market, the danger of further slides in regional currencies appeared considerably less immediate late yesterday.

"Thailand is echoing some of the dynamics we have seen in Korea," said David Fernandez, regional economist at J.P. Morgan in Singapore. "The large current account surplus is supporting the baht, helped by some fundamental investment inflows."

This combination of factors, says Fernandez, will allow the Thai authorities to continue to lower interest rates in order to relieve some of the pressures on domestic businesses, without triggering a run on the baht.

Late in Asian trading, the U.S. dollar was trading at 41.1450 baht, down from 41.5650 baht the previous day.

Both the Singapore dollar and the Malaysian ringgit also rose strongly yesterday, as offshore players bailed out of their long U.S. dollar positions, pushing the U.S. currency down though key support levels.

Against the Singapore currency, the U.S. dollar fell below the S$1.7500 level to end Asian trading at S$1.7477, down from S$1.7565 a day earlier.

Against the ringgit, the U.S. dollar slipped through support at 4.1800 ringgit to reach 4.1700 ringgit late in Asian trading, down from 4.21 ringgit the day before.

The Indonesian rupiah also strengthened sharply yesterday, rising to fresh two-months highs, before giving up its gains late in the day to finish Asian hours slightly down against the U.S. dollar.

Towards the close of Asian trading the U.S, dollar was quoted at 11,600 rupiah, up from its intraday low at 11,100 rupiah, and marginally above 11,575 rupiah late on Wednesday.

Among other regional currencies, the Philippine peso ended higher, with the U.S. dollar dropping to close at 42.55 pesos, down from 42.92 pesos at the end of Wednesday's session.

Against the won, the U.S. dollar ended at 1,300 won, down from 1,305 won the previous day. Against the Taiwanese currency, the U.S. dollar closed at NT$34.557, compared with NT$34.699 the day before.

In the spot market the Hong Kong dollar ended a touch lower, with the U.S. dollar rising to HK$7.7477, compared with HK$7.7465 late on Wednesday. In the forward market however, the Hong Kong dollar interest rates implied by the premiums on US$/HKD forwards eased, with the implied three-month rate falling to 10.59 percent, from 11.37 percent on Wednesday.

Implied yuan interest rates also eased, although the Chinese currency remained rock steady in the spot market with the U.S. dollar ending the day unchanged at 8.2799 yuan (CNY). Late in Asian trading the three-month non-deliverable US$/CNY forward was quoted at an implied interest rate of 13.90%, compared with 16.80 percent the previous day.