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.