Tue, 06 Aug 2002

Tensions pull most Asian monies lower

Nirmala Menon, Dow Jones, Kuala Lumpur

Mounting China-Taiwan tensions and concerns over a double dip recession in the U.S. pulled most Asian currencies lower Monday.

The Taiwan markets were the hardest hit, with stocks down almost 6 percent and the local currency skirting a key support level against the U.S. dollar, following weekend remarks by Taiwan's President Chen Shui-bian that were interpreted as being pro-independence.

However, it was concerns over a double dip recession in the U.S., which gathered momentum after last week's disappointing overall growth, a weak job market and flat manufacturing activity, which pressured other Asian currencies, market participants said.

Chen's comments drew an angry response Monday from China, with its top Taiwan affairs spokesman Li Weiyi saying cross-strait relations have been seriously damaged, and that Chen was leading the island to "disaster."

Damage control by Taiwan's top China policy maker Tsai Ing- wen, and intervention by Taiwan's central bank failed to calm nerves as investors sold off the New Taiwan dollar and cashed out of equities.

"Most of the data is pointing to much softer global recovery led by the U.S. A bad U.S. is not good news for Asia," currency strategists said.

The New Taiwan dollar came close to crashing through a key support level at NT$34.00 to the U.S. dollar, but aggressive intervention by Taiwan's central bank helped shore up the local unit.

The dollar closed at NT$33.825, up from NT$33.723 Friday, after trading in a range of NT$33.723 and NT$33.980 through the day. Trading was heavy, with volumes rising to US$880.5 million, compared with $653 million Friday. Traders estimated the central bank bought more than $200 million of the New Taiwan dollar to prop up market confidence.

Meanwhile, the South Korean won finished markedly lower as foreigners offloaded local shares for a fourth straight session, and as the yen retreated against the dollar.

The greenback ended at 1,198.0 won, up from Friday's close of 1,184.5 won, after trading between 1,180.5 won and 1,199.0 won.

The greenback was also buoyed against the Philippine peso as companies seek dollars for import and debt payment requirements, and on expectations the central bank may cut overnight rates soon following a set of weak inflation data for July.

The U.S. dollar closed at 51.510 peso, from 51.300 Friday.

The greenback also strengthened against the Thai baht, which weakened in tandem with the regional currencies and on strong importer buying of dollars.

Traders said that fears of Thai central bank intervention ensured the 42.30 bath resistance level held. The U.S. dollar was quoted at 42.15 baht in late Asian trading, from 42.105 bath Friday.

The greenback had a choppy ride against the Singapore dollar as gains from short-covering were eroded by selling on a cautious outlook for the world's largest economy.

The tumble in the Taiwanese equities and currency markets Monday amid heightened tensions between the island and China also reinforced the U.S. dollar's image as a safe haven, he said.

The greenback was quoted at S$1.7558 in late Asian trading, from $1.7559 Friday.

The U.S. dollar closed flat at Rp 9,080 as suspected intervention by Bank Indonesia shielded the local unit from the waves of dollar buying across the region.

At one point, the greenback slid to an intraday low of Rp 9,050 on suspected dollar selling by the central bank. But it rebounded steadily during the course of the day as market participants bought the greenback in line with its rally against other Asian currencies.