SE Asian monies firmer as funds flow back

SE Asian monies firmer as funds flow back

SINGAPORE (Dow Jones): Southeast Asian currencies were stronger against the U.S. dollar in late trading Thursday, as a groundswell of positive sentiment over Japan's ongoing efforts to fix its ailing economy pushed funds back into the region, traders and economists said.

"The improvement of sentiment towards Japan has relieved the pressure on regional currencies," said Kate O'Donoghue, regional economist at Barclays Capital. "The regional central banks will take this opportunity to build up their foreign reserves so we probably won't see currencies strengthen dramatically."

Despite the sudden appreciation of the yen against the U.S dollar to 118.55 and signs that multi-billion yen packages will be dropped on the region as well as Japan's embattled banking system, economists expect the U.S. dollar to gradually strengthen to around Y130 by the end of the year.

"There no signs yet that Japan has bottomed out. The yen will weaken but when it does, we will see a minimal weakening of other Asian currencies," said Fong Cheng Hong, head of emerging market research at Nomura Singapore.

Countries such as Thailand, Singapore and the Philippines are set to reap the benefits of capital inflows, "because investors are feeling much more comfortable with Asia's markets," said one economist at a U.S. bank.

"Of course, there is still pain to go through for countries such as Thailand and Indonesia, where the recapitalization process is by no means over - or even started, for that matter. But from the investors' point of view, the picture is now clearer."

At 1000 GMT, the U.S. dollar is trading at S$1.6123, well down from S$1.6216 in late trading Wednesday.

The U.S. dollar's fall suggests "further unwinding of short Asian currency positions as the U.S. dollar continues to consolidate after its fierce moves last week," according to Paribas' daily foreign exchange commentary. "Even evidence of slowing growth failed to weaken the local currency, as a slowdown in growth is already very much discounted."

Sentiment for the Singapore dollar was also buoyed by reports on Wednesday that a corporate tax cut might be arrive in November.

The U.S. dollar is also trading at 8,710 rupiah, flat against levels seen late Wednesday. Intraday trading pushed the dollar as low as 8,500.

Investors have been encouraged by Bank Indonesia Governor Sjahril Sabirin's comments this week that Indonesia authorities are not planning to implement capital controls, and that rates for three-month Sertifikat Bank Indonesia notes should continue to fall as the government eases monetary policy.

The steady tone of the rupiah is also supported by anecdotal reports of global fund managers taking a renewed interest in Indonesian blue chips," Paribas said in its report. "With the risks reduced significantly from the paralysis of hedge funds, investors are likely to get further reprieve from lower interest rates."

The U.S. dollar is also trading at 37.90 baht, down from 38.08 baht Wednesday. If the dollar stays below 38 baht, it could test this year's intraday low of 37.65 baht, which was reached March 30, traders said.

"The baht has strengthened as regional currencies have strengthened, but I'm not hearing aggressive sell orders in the market at the moment," said a trader at a Japanese bank. He expects the baht to trade sideways between 37 baht and 40 baht, and doesn't foresee central bank intervention.

Traders have expected intervention as the baht climbed above 38.50 baht and now 38 baht, but Thai Deputy Prime Minister Supachai Panitchpakdi said earlier this week that the country's "flavor of the month" status with investors has meant positive capital inflows and a stronger baht - despite falling interest rates, which are now around 8 percent from 24 percent at the beginning of the year.

The U.S. dollar is also trading at 43.20 pesos, slightly lower that 43.255 peso in late trading Wednesday. In North Asia, the U.S. dollar is trading at 1,334 won, down slightly from 1,350 won; and at 32.946 New Taiwan dollars, down from NT$33.277, a result of central bank intervention to keep the U.S. dollar below NT$33, traders said.