SE Asian currencies trail the yen's rise

SE Asian currencies trail the yen's rise

SINGAPORE (Dow Jones): Southeast Asian currencies faithfully trailed the yen higher as the Japanese currency rose against the U.S. dollar during Asian trading hours yesterday.

The yen dropped past 146 to the dollar before rebounding later to 144/145 in late trade.

With commercial customers and investors largely absent from the foreign exchange market, trading was confined almost entirely to the interbank market and dominated by short-term swings in sentiment towards the yen, according to dealers.

As Japanese threats of intervention caused interbank traders to bail out of their long dollar positions against the yen, they also pared back their outstanding positions against Southeast Asian currencies, boosting the Singapore dollar, the ringgit and the baht.

The rising yen also helped push the won higher, while diminishing demand for U.S. dollars supported the rupiah. The new Taiwan dollar slipped, however, despite sales of U.S. dollars by the central bank, while the Philippine peso also eased to close lower.

The yen is set to remain the principal driving force for regional markets in the near future, say traders. But even without yesterday's rally in the Japanese currency there would have been little incentive to sell Southeast Asian currencies, despite the underlying weakness in the region's economies.

Even in Malaysia, where the market widely expects further easing of monetary policy to follow last week's 50-basis-point interest rate cut, the ringgit is showing unforeseen resilience.

Late in Asian trading, the U.S. dollar was trading at 4.1510 ringgit, down from 4.1675 ringgit a day beforehand.

"Malaysia is testing the water for more interest rate cuts. I'm surprised that the ringgit has not weakened further," said Neil Saker, regional economist at SG Securities in Singapore.

"The short-term speculative interest to short the ringgit simply isn't there," explained a regional currency trader at a German bank in Singapore. "It is only the interbank players contributing to the market's liquidity, and they are just following the yen."

Even if the Malaysian authorities do pursue further monetary easing, it does not necessarily follow that the ringgit will drop, says Fong Cheng Hong, regional economist at Nomura Singapore.

"Any foreign capital that was going to leave Malaysia left long ago, meanwhile the government is doing a good job of mobilizing nationalist sentiments to contain leakage of domestic capital," she said.

In fact, at this stage of the economic crisis easing monetary policy may even boost the ringgit, argues Fong, as foreign direct investment flows into Malaysia to capitalize on the economic growth opportunities created by lower interest rates.

"I praise Malaysia for taking these steps," she said. "Of course uncontrollably printing money would be disastrous for the ringgit, but at this stage in the economic downturn there is room for prudent easing."

The Singapore dollar also benefited from the yen's strength, with the U.S. dollar dropping to S$1.7251 late in Asia, down from S$1.7333 late the previous day.

"Everything is trading on the dollar/yen," said one dealer at a U.S. bank in Singapore, as the baht also rose, boosted by genuine investment inflows into Thailand as well as the yen rally, according to traders.

Late in the Asian day, the U.S. dollar was quoted at 40.7250 baht, down from 40.8850 late on Monday.

"For now we are seeing no demand to buy U.S. dollars. The pledges of extra aid money are helping the dollar to come off," said a regional currency trader at a Dutch bank in Singapore.

Elsewhere in Asia, the won strengthened a touch, helped by the yen rebound, but the new Taiwan dollar and the Philippine peso both fell back.

At the close of domestic trading in Seoul, the U.S. dollar was quoted at 1,240.50 won, down from 1,242.50 won at Monday's close.

Against the New Taiwan dollar, the U.S. currency rose on strong local demand despite sales of around $50 million by the central bank. At the close of domestic trading, the U.S. dollar was at NT$34.427, up from NT$34.419 at the previous close.

On the Philippine Dealing System, the U.S. dollar finished at 42.155 pesos, up from 42.140 pesos at the end of Monday's session.