Southeast Asia currencies mostly fall

Southeast Asia currencies mostly fall

SINGAPORE (Dow Jones): Southeast Asia's foreign exchange markets remained slumped in end-of-year lethargy throughout Asian trading on Tuesday.

Of the Southeast Asian currencies, only the Philippine peso showed signs of animation, as an influx of foreign funds lifted the local currency, once again forcing the U.S. dollar below the psychologically important 39.00 level peso.

Activity in North Asian markets was brisker. In Taipei the New Taiwan dollar edged higher, building on its recent gains, as the central bank stepped into the market, both buying and selling U.S. dollars in an attempt to moderate market volatility following Monday's interest rate cuts.

In Seoul, the South Korean won retreated from the four-month high it set on Monday, as market participants took fright at the prospect of central bank intervention to check the local currency's rapid appreciation.

But, for the most part, trading was extremely subdued.

"The market is very, very quiet - exceptionally quiet," said Tony King, director of foreign exchange at Barclays Capital in Singapore.

The head of foreign exchange at one Japanese bank in Singapore, when called by Dow Jones Newswires, was said by a subordinate to be "sleeping."

With little fresh information to drive them one way or the other, the Thai baht and Singapore dollar broadly shadowed the yen, easing in early Asian trading before recouping some of their losses later in the day.

Late in Asian trading, the U.S. dollar was quoted at S$1.6592, up from S$1.6577 late Monday.

Against the baht, the U.S. currency was at 35.9650 baht, little different from 36.9600 a day ago.

The rupiah, too, was little changed on the day, with the U.S. dollar ending interbank trading in Singapore at 7,425, down just a touch from 7,535 late Monday.

Against the Philippine peso, however, the U.S. dollar ended lower, as a combination of fund inflows from foreign direct investors and remittances from expatriate Filipinos buoyed the local currency.

In North Asia, the New Taiwan dollar ended higher after the market reacted positively to the news late Monday that the Central Bank of China, the country's central bank, cut its benchmark rediscount rate 25 basis points to 4.75 percent.

Against the won, the U.S. currency ended slightly higher, as market participants bought dollars to cover their positions, nervous that the Bank of Korea might intervene in the market to hold down the won after it hit a four-month high on Monday.

At the close of domestic trading in Seoul, the U.S. dollar was quoted at 1,217 won, up from 1,208 Monday.

Although regional currencies for the most part traded sideways in the spot foreign exchange market, the yields on Asian currencies implied by swap and non-deliverable rates continued to fall on Tuesday.

"The spread over U.S. dollar yields has almost disappeared across the board," said Daniel Lian, head of Asian markets research at ANZ Investment Bank in Singapore. "There is a clear market consensus that the risk of Asian currencies depreciating is low."

With the yield implied by three-month U.S. dollar/baht swap rates falling to under 6 percent from 8 percent a month ago, and Hong Kong dollar yields at 5.9 percent, down from 6.5 percent, the market is barely factoring any risk premium at all into Asian currencies, explained Lian.