SE Asian currencies higher in thin trading

SE Asian currencies higher in thin trading

SINGAPORE (Dow Jones): Most Southeast Asian currencies rose modestly in holiday-thinned trading Monday, led by another fall in the dollar against the yen.

As a holiday in Singapore and Malaysia kept regional currency trading volumes subdued, traders focused on moves in the dollar against the yen. During Asian trading, the dollar continued to weaken amid expectations that U.S. interest rates have further to fall in coming months, dropping to a low of Y113.88, from Y115.36 late in New York Friday.

The Indonesian rupiah and the Philippine peso were the biggest beneficiaries of the dollar's weakness. The rupiah continued its recent surge against the U.S. currency, rising smartly on buying from offshore banks attracted by high Indonesian interest rates, dealers said.

"They're making use of the higher interest rates," a Hong Kong-based dealer said.

The action pushed the dollar below the key 8,000 rupiah barrier to 7,800 rupiah in late trading, down from 8,050 rupiah late Friday.

Comments from the International Monetary Fund also gave a midday boost to the currency when Hubert Neiss, the IMF's Asia Pacific director, said there was still room for the rupiah to appreciate if Indonesia sticks to the IMF program.

The IMF signed a new letter of intent with the government Monday after its monthly review of Indonesia's progress, clearing the way for further disbursement of aid money.

Indonesian state banks also fueled the rupiah's upward momentum by selling dollars. They sold the U.S. currency at 7,900 rupiah Monday, dealers said.

The rupiah is expected to test 7,500 rupiah later in the week, traders said.

In Europe, the dollar is edging up within ranges against the Deutsche mark and yen Monday midday in Europe, after bids for the U.S. currency emerged following its test towards support at DEM1.6100 and Y113.75 late in Asia.

Against the yen, where most of the market interest lies, the dollar has established a "short-term equilibrium" around DEM114.50, said Graham Edwards, managing director of European foreign exchange sales at Merrill Lynch.

"Market participants feel the yen is expensive here, but with dollar liquidation continuing, a lack of outflows from Japan and pressure on Japanese exporters to hedge their dollar exposures, there's no urgency," he said.

He noted that last Thursday's surprise quarter-point rate cut by the U.S. Federal Reserve, and expectations of further Fed moves, had left the dollar "on the defensive." This defensiveness is heightened by expectations that U.S. stock markets will open lower Monday.

At 1100 GMT the dollar was at Y114.81, up from Y114.10 in Tokyo at 0540 GMT but below Y115.37 late Friday in New York. It was at DEM1.6220, above DEM1.6172 earlier and DEM1.6195 Friday.

Concern that more U.S. easing is to come, after the Federal Reserve cut the fed funds rate twice within less than three weeks, is likely to be stoked by comments made Monday by U.S. Federal Reserve Board Governor Roger Ferguson.

Speaking in Sydney, Ferguson said more may need to be done to ensure that the current tightening of liquidity in the U.S. won't affect the "real" economy.

"I won't declare enough has been done," Ferguson said.

Recent background speculation that the Deutsche Bundesbank might cut interest rates was damped Monday when the German Economics Ministry said third-quarter gross domestic product growth was "notably higher" than in the second quarter, both on a quarterly and a yearly basis. In the second quarter, German GDP rose 0.1 percent from the first quarter and a real 1.7 percent from a year earlier

Against the mark, the dollar is likely to continue in a DEM1.61-DEM1.63 range for now.

Against the yen, the dollar "could well be in a trend toward lower levels," despite Tuesday's gains, the analysts said.