Strong economic outlook pushes won to 5-month high
Strong economic outlook pushes won to 5-month high
HONG KONG (Dow Jones): A rally in the yen combined with a strong fundamental economic outlook to push the South Korean won to a five-month high against the U.S. dollar during Asian trading hours Wednesday.
A similar story was credited with lifting the New Taiwan dollar to its strongest level in three and a half months, but in South East Asia, regional currencies slipped back as caution tempered the enthusiasm seen Tuesday.
The immediate cause of Wednesday's rise in the won, according to traders, was the overnight rally in the yen. After it fell below 120 yen in New York trading Tuesday, the U.S. dollar opened down steeply against the won in Asia Wednesday, dropping to an intraday low of 1,161 won, its weakest level since Jan. 8.
But although the yen may have helped push the won higher in the short term, analysts said Korea's strong economic outlook is the real engine driving the local currency's rally.
"I think the won will strengthen further. The fundamentals are powerful - the Korean economy is leading the regional recovery, the inflation outlook is benign and the balance of payments is strong," said David Simmonds, Asian currency strategist at Citibank in Singapore.
"The market is well on its way to meeting our initial expectations of 1,150 won, and there is a good possibility that the dollar will go lower than that," he added.
Other observers agreed that the won is likely to strengthen further, noting that state-owned banks appear to have been intervening less in the market over recent days.
"There is a steady upward pressure on the won. In the past it has been countered by dollar-buying from the state-owned banks, but it seems they are stepping back from the plate now," said Marshall Gittler, senior foreign-exchange analyst at Bank of America in Hong Kong.
By the close of trading Wednesday, the U.S. dollar had dropped to 1,165.50 won, up a touch from its earlier low, but down 0.5 percent from Tuesday's closing level of 1,172.50 won.
The New Taiwan dollar also hit a long-term high Wednesday, lifted by news of buoyant semiconductor sales and a growing belief that the central bank may be prepared to tolerate a stronger currency.
Wednesday's announcement by Taiwan Semiconductor Manufacturing Co. of record sales in May, up 39 percent from a year earlier, reinforced positive sentiment following the government's release of data Tuesday showing that Taiwan's trade surplus hit its highest level since December 1997 during May.
At the close of local dealing, the U.S. currency was quoted at NT$32.528, up a touch from its earlier three-and-a-half-month low at NT$32.466, but still down from NT$32.579 at Tuesday's close.
Despite the strength of the yen, currencies in Southeast Asia largely failed to extend Tuesday's gains, as the euphoria that followed Monday's elections in Indonesia subsided into cautious optimism.
The U.S. currency was also higher against the Thai baht. Late in Asian trading, the U.S. dollar was quoted at 36.9650 baht, up a touch from 36.9400 baht late Tuesday.
The Singapore dollar managed to hang onto some of its gains, however. After falling below S$1.7100 in early dealing, in line with its drop against the yen, the U.S. dollar clawed back some of its losses, to finish the Asian session at S$1.7145, down slightly from S$1.7165.
In Manila, the Philippine peso also finished a little stronger, with the U.S. dollar ending the local session at 36.820 pesos, compared with 36.845 pesos the day before.