Strike at Iraq pulls Asian monies

Strike at Iraq pulls Asian monies

SINGAPORE (Dow Jones): The U.S. strikes against Iraq and the dismal results of the Financial Sector Restructuring Authority auction in Thailand combined to drag Southeast Asian currencies lower against the U.S. dollar during Asian trading hours on Thursday.

In a knee-jerk reaction to the overnight air strikes, market participants bought U.S. dollars at the start of Asian trading to cover their short dollar positions against the regional currencies.

Although the dollar purchases initially pushed currencies in both North Asia and Southeast Asia lower, the U.S. dollar's upward spike proved relatively short-lived.

After rising to an early high of 36.9000 baht, the U.S. dollar later gave back some of its advance to end Asian hours at 36.6850 baht. Even at that rate, however, the U.S. currency was still well above its level of 36.2950 baht toward the end of Asian trading on Wednesday.

Although the Bank of Thailand denied that the poor response to the auction would adversely affect the baht, most traders and analysts predicted more falls for the Thai currency in the near term.

With a weaker baht, analyst said, assets priced at the same level in local currency terms would appear more attractive to dollar-based investors.

"The Thai government would not be uncomfortable if the baht weakened from here to levels around 38.00 baht to 40.00 baht" to the U.S. dollar, he said.

Whether or not the Thai government does decide to pursue a weaker baht, many analysts agreed that the poor investor demand generated by the auction will serve as an important alarm call for Asian currency bulls.

The auction's failure to set a clear benchmark for Asian asset pricing emphasizes that banking and finance sector restructuring, on which economic recovery is widely seen to hinge, will be drawn out and highly problematic.

"Restructuring is going to take a long, long time. If the market is expecting quick solutions, it is going to be sorely disappointed," warned the head of Asian research at one leading U.S. bank, requesting anonymity.

Although it too fell in early Asian trading, the Singapore dollar later rebounded to finish the day barely changed against the U.S. currency.

Although position-covering propelled the U.S. dollar to an early intraday high of S$1.6540, at that level it encountered strong commercial selling interest, which forced it lower again. After support at S$1.6450 held firm, the end of Asian dealing saw the U.S. currency trading at S$1.6493, little different from S$1.6495 at the same time the previous day.

Elsewhere in Southeast Asia both the Indonesian rupiah and the Philippine peso finished Asian trading down against the U.S. dollar following the early sell-off in regional currencies.

Late in Asia the U.S. currency was quoted at 7,787 against rupiah, up from 7,650 towards the end of Wednesday's session.

On the Philippine Dealing System, the U.S. dollar ended at 39.45 pesos, up from 39.30 pesos at the previous close.

In North Asia, both the South Korean won and the new Taiwan dollar also ended the day down against the U.S. currency, largely in response to the early fall in the yen following the U.S. air strike against Iraq.

In Seoul, the U.S. currency ended at 1,209.50 won, compared with 1,208.50 won the day before.