SE Asian currencies show moderate positive gains

SE Asian currencies show moderate positive gains

SINGAPORE (Dow Jones): Southeast Asian currencies rose across the board against the U.S. dollar during Asian trading Tuesday, led by moderate to strong gains in the Thai baht, Singapore dollar, Chinese yuan and New Taiwan dollar.

Weakness in the U.S. dollar versus the yen Tuesday, rising expectations of further cuts in the U.S. Fed funds rate and caution on the part of hedge funds speculating in Asian currencies contributed to the strength of regional currencies Tuesday, said market players.

The dollar fell in early Asian trading Tuesday to 132.52 yen around 08:35 GMT from 134.32 yen Monday.

In Asian currencies, the Chinese yuan ended Tuesday onshore at its strongest point against the dollar since April 30. The Singapore dollar broke above the psychological S$1.68 level to the U.S. dollar while the New Taiwan dollar rose to a more than four-month high against the U.S. dollar.

"We don't expect a big change in the trend. In the big picture, we see the dollar-yen (dollar versus the yen) going down to 128.00-129.00," said Daniel Lian, head of Asian markets research at ANZ Investment Bank in Singapore.

"On the back of the strengthening of about four yen, there is room for the Asian currencies to strengthen a bit more," he said.

"The focus of the Asian currencies remains on the softer U.S. dollar in the near term. With international banks tightening credit as a result of the U.S. hedge fund (Long Term Capital Management) debacle, there would be less risk appetite by offshore financial institutions to engage in speculative activities against the region's currencies," said a strategist at Standard Chartered Bank in Singapore.

"Instead, there is some talk that funds may be looking once again at high yield plays," said the strategist.

Among the highlights of Tuesday's trading was the gain in the Chinese yuan, said market players.

Falling dollar demand and reports of a top government minister's reconfirmation that China won't devalue its currency pushed the yuan higher Tuesday, traders said.

They said a crackdown on illegal currency transactions - which began in earnest early last month - has shaved demand for dollars by stopping a large number of dollar-buying orders reaching the official exchange.

In onshore trading Tuesday, the U.S. dollar closed at 8.2779 yuan, down from 8.2781 on Monday. It traded within the range of 8.2778 to 8.2781 range.

Benefiting on the back of the yuan was the New Taiwan dollar, which rose Tuesday to a more than four-month high against the U.S. dollar. Exporters and holders of foreign currency deposits were the main sellers of U.S. dollars, said market players.

At 08:00 GMT, the U.S. dollar ended lower at NT33.457, the lowest closing level since NT$33.230 on June 1, and down from Saturday's NT$33.710 close. Trading volume soared to a 10-month high of US$718.5 million from Saturday's half-day session of US$324.0 million.

Similarly, the Philippine peso closed higher against the dollar Tuesday in local trading. At the close, the dollar averaged 43.778 peso on the Philippine Dealing System, down 12.8 centavos from Monday's average of 43.906. The dollar was last traded at 43.780 Tuesday. Volume totaled $108.5 million, compared with $90.5 million Monday.

"The yen's gains are allowing the peso to appreciate further in the absence of any major commercial demand for dollars," a trader with a foreign bank said.

In southeast Asia, the Thai baht and the Singapore dollar figured as the day's top performers, market participants said.

The entry of a new party into the coalition of Thai Prime Minister Chuan Leekpai continued to bolster sentiment toward the baht, said traders.

"If the 38.50 baht level against the dollar gives way, the next level to watch is 37.20. There are still a lot of investment inflows into the country," said Derrick Lee, senior currency analyst at MCM Asia Pacific.

Technically, the key medium-term support for the U.S. dollar is found at 37.00 baht, this year's low hit in April, said a Barclays Capital strategist. The main plus factor for the baht is the effort by government to mitigate future systemic risks in the banking system, said the strategist.

At 0954 GMT, the dollar is at 38.8950 baht in onshore trading, down from 39.1750 late Monday. The dollar traded at 39.0500 in early Asian trading.

Against the Singapore dollar, the U.S. dollar fell below the psychologically important S$1.68 level on the back of gains in other regional currencies. With the yen expected to strengthen further, market players said the downside for the U.S. dollar has been revised lower. The current target is for the dollar to head lower to S$1.6600, said Derrick Lee at MCM Asia Pacific.

Against the Singapore dollar, the U.S. dollar was quoted at S$1.6791, down from S$1.6853 late Monday.

The often quietly traded rupiah also gained ground against the U.S. dollar. After skirting around the key Rp 10,000 to the dollar level all day, the Indonesian rupiah was trading at 10,050 late Tuesday, as renewed rumors about the government's plan to increase monitoring of capital flows sparked dollar selling. The dollar was quoted at 10,475 late Monday.

The Indonesian currency tested the 10,000 level all day, traders said, but failed to hit it or break it.