SE Asian monies fall on weaker yen

SE Asian monies fall on weaker yen

SINGAPORE (Dow Jones): The Philippine peso rose and the Thai baht fell in a day of otherwise quiet trading in Southeast Asian currency markets on Tuesday.

Among other regional currencies the Singapore dollar, the Indonesian rupiah, the new Taiwan dollar and the South Korean won all ended the session slightly lower, shadowing a fall in the Japanese yen.

Despite the closure of the domestic market in Bangkok for a holiday, offshore trading volumes in the baht were relatively heavy. Early in the Asian day strong interest to buy U.S. dollars against the Thai currency from offshore market players pushed the U.S. dollar up through the key 37.80 baht level which had capped the U.S. currency since late October 1998.

According to a trader at a U.S. bank in Singapore, market players actively went short on the baht against the U.S. dollar in order to fund long positions in the Philippine peso, driving the U.S. currency to a five-month high of 37.87 baht in intraday trading.

"The trade makes sense in that Philippine interest rates, although falling, are still above baht rates, and the Philippine economy is relatively a more positive story than Thailand," explained Thio Chin Loo, foreign exchange strategist at Banque Paribas in Singapore.

Although she conceded that market sentiment had swung against the baht, because the pace of Thailand's economic recovery appears slow, Thio advocated going long on the Philippine peso against the Singapore dollar rather than against the baht.

"The funding pick-up is larger against the Singapore dollar," she explained.

Short term funding costs for short Singapore dollar positions are currently around 0.5 percent, compared with around 5.8 percent for the baht. The offshore peso yield implied by the rate on the three-month U.S. dollar/peso non-deliverable forward is around 12.5 percent.

Traders are also somewhat nervous of shorting the baht too aggressively, fearing that Thailand's three day holiday next week may provide an opportunity for speculative players to squeeze liquidity in the offshore market, driving funding costs higher.

Those fears should limit the U.S. dollar's potential gains against the Thai currency, capping the U.S. currency at around 38 baht to 38.20 baht over the next few sessions, according to baht traders in the offshore market.

Late Tuesday in Asia, the U.S. dollar was quoted at 37.8850 baht, up from 37.6800 baht the previous day.

Against the Philippine peso, the U.S. dollar ended local trading at 38.440 baht, down from 38.540 baht at Monday's close and at its lowest level since mid-February.

Sentiment towards the Philippine economy received a boost early Tuesday on the announcement of significantly lower-than- expected inflation data for March. The annual inflation rate dipped to 8.7 percent in March, down from 9.9 percent in February, and well below the 9.5 percent rate the market had expected.

With inflation trending downwards after hitting 11.6 percent in January, most observers believe the authorities in Manila have more leeway to trim domestic interest rates.

Other regional currencies fared less well on Tuesday, with the Singapore dollar easing slightly as the U.S. dollar retained its buoyant form against the Japanese yen.

"The (U.S.) dollar should remain supported at S$1.7300, and I think we should see it a little higher before the end of the week," said a trader at a European bank in Singapore. He added that many market participants are looking for the U.S. currency to retest it's six-month high of S$1.7380 hit in early March.

Late Tuesday in Asia, the U.S. currency was trading at S$1.7356, up a fraction from S$1.7340 late in Asian dealing the previous day.

The rupiah also slipped, with the U.S, dollar rising to end Asian trading at Rp 8,875, up from 8,685 rupiah the previous day.

In North Asia, the won recovered most of the ground it had lost after opening sharply lower to end the session only slightly down from the previous close on Friday. The Korean market was closed Monday for a holiday.

After hitting an intraday high of 1,228 won at the open, the U.S. dollar subsequently sank back to end local trading at 1,225 won, up from 1,224.60 won on Friday.

Against the New Taiwan dollar, the U.S. currency closed at NT$33.135, up from NT$33.124 on Friday. The Taiwanese market was also closed Monday.