Southeast Asian currencies ride out Brazilian storm

Southeast Asian currencies ride out Brazilian storm

SINGAPORE (Dow Jones): Southeast Asian currencies survived a
day of nervous trading activity following the effective
devaluation of the Brazilian real, to end Asian hours on Thursday
mixed against the U.S. dollar.

In North Asia both the new Taiwan dollar and the South Korean
won ended lower following Wednesday's announcement by the
Brazilian central bank that it was to widen the real's trading
band. The decision triggered an immediate 8.2 percent plunge in
the real and spread shockwaves through financial markets in the
U.S. and Europe.

Even though most Southeast Asian currencies held up relatively
strongly, traders warned that the reverberations from the real's
fall will still continue to rock regional markets in the near
term.

"The dollar will stay bid over the next few days," cautioned
one regional foreign exchange trader at a U.S. bank in Singapore.
"People would rather be long than short (U.S. dollars) going into
the weekend. They have been burned before."

Most heavily affected of the Southeast Asian currencies was
the Indonesian rupiah, which on Thursday was forced to its lowest
level against the U.S. dollar in over two months.

"Over the past two weeks we have seen foreign investors buying
into Indonesian stocks, but after the Brazilian crisis people are
no longer comfortable holding rupiah," said a trader at a
European bank in Jakarta. "In such a thin market this has caused
a snowball effect."

Although other Southeast Asian currencies, including the
Philippine peso and the Thai baht, also suffered from Brazil-
induced jitters at the start of the day, by the end of Asian
trading they had recovered most, if not all, their earlier
losses.

On the Philippine Dealing System the peso came under heavy
pressure early in the session, but later clawed back the bulk of
its losses to finish the day only slightly lower against the U.S.
dollar.

Acknowledging that the turmoil in Brazil is likely to dent
investor confidence in emerging markets, including the
Philippines, a senior Philippine Central Bank official said. "The
Philippine economy is in good shape to withstand the contagion."

The central bank, he said, is prepared to raise interest rates
to defend the peso, should the currency come under further
pressure as a result of the real devaluation.

At the close of local trading, the U.S. dollar was quoted at
38.500 pesos, up from 38.460 pesos at Wednesday's close, but well
down from Thursday's intraday high of 38.850 pesos.

The Thai baht also dipped early in the day, before recovering
slightly after encountering good support.

"We are getting a bit of business from customers who are
buying the dollar against the baht, but this is being driven more
by nervousness than by anything else," reported one regional
currency trader at a U.S. bank in Singapore.

After the U.S. currency was pushed up as high as 37.05 baht in
early Asian trading, dollar sales from onshore banks triggered a
bout of profit-taking and the dollar slipped back again.

Towards the end of interbank trading in Asia, the U.S. dollar
was being quoted at 36.8900 baht, well down from its earlier high
and actually lower than 36.9550 baht late in Asian trade on
Wednesday.

The pressure on the baht was attributed in part to selling
from U.S. investment banks. Following the devaluation of the real
they moved to unwind some of the long baht/short Singapore dollar
positions established in recent weeks, driving the baht lower and
the Singapore dollar higher, according to traders.

Late in Asian trading the U.S. dollar was quoted against the
Singapore currency at S$1.6822, down from S$1.6855 at the same
time the day before.

"When the dollar failed to go much higher against the
regionals after the real's devaluation, the market lost its
momentum, so now people are reducing their positions," explained
a trader at a second U.S. bank.

In North Asia, both the New Taiwan dollar and the Korean won
succumbed to Brazilian-inspired jitters as market players covered
short U.S. dollar positions.

Against the Taiwanese currency, the U.S. dollar finished at
NT$32.255, up from NT$32.212 at the previous close, despite U.S.
dollar sales from the central bank.

Against the won, the U.S. dollar ended at 1,186 won, up from
1,174 won the previous day.