Southeast Asian currencies strengthen on yen's rally

Southeast Asian currencies strengthen on yen's rally

SINGAPORE (Dow Jones): A rally in the Japanese yen, which saw the U.S. dollar tumble to a low of 118.92 yen in Asian trading hours, triggered a steep run-up in Southeast Asian currencies Wednesday.

Both the Singapore dollar and the Thai baht rose sharply, while the Philippine peso also posted handsome gains. Even the Indonesian rupiah, still shunned by the majority of market participants, ended Asian trading up slightly.

Trading in North Asian markets followed a similar pattern, as the rise in the yen and continuing inflows of investment capital lifted both the new Taiwan dollar and the South Korean won.

Among Southeast Asian currencies, the Singapore dollar saw the most pronounced move, rising over one percent in early dealing as the U.S. dollar dropped to a low of S$1.6968, its weakest level since Feb. 15.

The impact of the U.S. dollar's fall was reinforced by comments from Singapore's Deputy Prime Minister Lee Hsien Loong. Speaking overnight in London, Lee, who is also chairman of the Monetary Authority of Singapore, reiterated that the government will not depreciate the Singapore dollar to heighten export competitiveness.

By the end of Asian dealing, however, the U.S. dollar had lifted slightly off its earlier low to trade at S$1.6970, down from S$1.7232 late the day before.

Despite the magnitude of the U.S. dollar's drop Wednesday, technical traders believe the U.S. currency may be nearing a bottom against the Singapore dollar.

Stop-loss position-covering also saw the U.S. dollar lose ground to the Thai baht Wednesday. Thin liquidity caused by the closure of Thai markets for a holiday exaggerated the extent of the U.S. currency's fall in the offshore market, but few dealers saw the U.S. currency extending its fall much beyond Wednesday's intraday low of 37.51 baht. They said the market would shy away from testing the 37.50 baht level at which the Bank of Thailand last intervened to support the dollar in March.

Toward the end of Asian trading the U.S. dollar had picked up off its earlier low to trade at 37.5850 baht, down from 37.9150 baht late the previous day.

The U.S. dollar's fall against the yen, coupled with continued investment inflows into the Philippines, also lifted the Philippine peso Wednesday.

Although by the close of trading the U.S. currency had fallen to 38.155 pesos, down from 38.295 pesos the day before, the U.S. dollar is not thought likely to fall much further in the short term.

"The Philippine government has clearly indicated that it is not comfortable with the peso stronger than 38.00 pesos. The authorities don't want the external sector, which has been the economy's only piston of growth, to fall into recession," said Cliff Tan, regional foreign exchange and interest rate strategist at Warburg Dillon Read in Singapore.

The same combination of a stronger yen and healthy investment inflows helped to lift North Asian currencies.

Perng Fai-nan, the governor of Taiwan's central bank, attributed the recent run-up in the new Taiwan dollar to inflows of foreign capital, conversion of foreign-currency deposits and a large surplus in Taiwan's trade balance. But although he told Taiwan's parliament that market forces would determine the exchange rate, he declined to comment on where the local currency might find its ceiling.

That left offshore traders speculating that the central bank would draw a line in the sand at NT$32.50, supporting the U.S. dollar above that level, in order to safeguard exports to the U.S.

At Wednesday's close, the U.S. dollar was at NT$32.952, down from NT$33.000 the day before.

Against the South Korean won, the U.S. dollar dropped to finish at 1,215.50 won, down sharply from 1,221.70 won at Tuesday's close.

In the short term, however, government-directed buying of U.S. dollars, coupled with forthcoming repayments of foreign currency debt obligations, are likely to draw a line under the U.S. currency's decline at 1,200 won, agree analysts and traders.