Southeast Asian currencies extend rally

Southeast Asian currencies extend rally

SINGAPORE (Dow Jones): Southeast Asian currencies continued to rise during Asian trading hours on Thursday, extending their rally as the U.S. dollar dropped further against the yen.

In North Asia, the Korean won also pushed higher, but the New Taiwan dollar fell back a touch as doubts began to emerge over the sustainability of the currency's recent run-up against the U.S. currency.

As the Thai baht, the Singapore dollar, the Philippine peso and the rupiah all rose against the U.S. currency, traders and analysts were quick to argue that it was dollar depreciation rather than regional currency strength that was powering the move.

Regional currencies are stronger simply because they are following the yen, argued Marshall Gittler, head Asian currency strategist at Bank of America in Hong Kong.

The dollar fell against the yen in Tokyo, as U.S. funds continued to sell the greenback in sluggish trading, dealers said.

In late trading, the dollar was trading at 116.87-89 yen, down from 117.90 yen in New York and 117.87-90 yen here Wednesday afternoon.

While a rising yen is good news for the regional currencies in the short term, Japan's weak economic fundamentals mean the rally is likely to prove unsustainable over the long haul as the yen slips back, says Gittler.

Late in Asia, the U.S. dollar was quoted at 36.8050 baht, down from 36.9500 a day earlier.

The rupiah also nudged higher, with the U.S. dollar easing to close at 7,537 rupiah, down slightly from 7,700 the previous day.

Against the Singapore dollar the U.S. currency slipped below the S$1.6200 barrier to end Asian trading hours at S$1.6175, down from S$1.6235 late on Wednesday.

The U.S. currency also closed lower on the Philippine Dealing System, slipping to end at 40.79 pesos, down from 40.90 pesos at Wednesday's close.

Although the recent appreciation of Southeast Asian currencies has some foundation in an improvement of economic fundamentals, the rally in North Asian currencies is less soundly based, argues Mark Macfarland, Hong Kong-based economist at Santander Investment Capital.

"In Southeast Asia we are beginning to see signs of bottoming out, but the rally in North Asia is more a reflection of what's happened to the yen. Fundamentally, there is nothing to get excited about," he said.

The U.S. dollar on Wednesday hit a seven-month low against the Taiwanese currency at NT$32.485, concerns that the exchange rate is in danger of getting out of line with the underlying economy began to surface.

At the close of trading on Thursday, the U.S. currency was quoted at 32.525 New Taiwan dollars (NT), up a fraction from NT$32.515 at Wednesday's close.

The recent rise in the Korean won is also fast becoming a cause of concern. Many market observers assume that the Bank of Korea stands prepared to step into the market and buy U.S. dollars to safeguard the competitiveness of Korean exports should the U.S. currency threaten to fall below a level of 1,300 won.

Whether the central bank intervenes or not, many analysts agree that the won's current rally is an anomaly driven by the run-up in the yen, and that in the longer term the won is set to reverse direction, with the U.S. dollar rallying to levels around 1,400 won or even 1,500 won.

"There is a lot of short term foreign debt which still has to be paid off, and the banking system still has to be fixed," warns Macfarland at Santander.

Nevertheless, the won continued to rise on Thursday, driven higher as local exporters cashed in their U.S. dollar revenues for won.

At the close of dealing on Thursday, the U.S. dollar was at 1,314 won, down from 1,317.50 won the previous day.