Weekly Asian currencies likely to maintain gains

Weekly Asian currencies likely to maintain gains

SINGAPORE (AFP): Asian currencies are likely to maintain their
gains against the dollar while regional stockmarkets look to
domestic indicators and U.S. economic figures to provide
direction in trade this week.

Despite relatively buoyant performances by Asian markets in
the past week, there are lingering fears of a possible interest
rate increase in the United States in a bid to rein in rising
inflation.

Asian dealers said they would keep wary eyes on the mid-week
release in the U.S. of May consumer price index figures, a speech
by U.S. Federal Reserve chairman Alan Greenspan and Wall Street's
movements.

But some observers said a rate increase in the U.S. would not
necessarily trigger a spike upwards in Asia's short-term interest
rates since inflation figures in the region are at low levels.

"A slip in the Dow Jones is healthy. The bigger fear is that
the long-term recovery of Asia will be unsustainable if the U.S.
grows too strongly," said Eddie Lee, regional economist at
Vickers Ballas Investment Research.

There are also hopes that Japan's unexpectedly strong economic
growth for the first three months of the year could translate
into firmer export numbers for Asian countries heavily dependent
on the Japanese market.

"Twelve months ago, everybody was looking at a protracted
recession (in Asia). But there's just all this pent-up demand,"
said Lee.

Despite some skepticism that Thursday's positive economic
figures herald a reverse in Japan's decade-long economic slump,
he was optimistic about the country's recovery.

"The chances are not bad for a couple of reasons. You have a
committed (Japanese) government, one that wants to keep interest
rates at rock bottom and not allow the yen to rise," he said.

Japanese Finance Minister Kiichi Miyazawa on Saturday said an
abrupt or sudden move in the exchange rate of the yen was
"undesirable."

"The level of the currency per se is not our foremost concern.
What we see as undesirable is the abrupt or sudden movement in
the exchange rate level," he told reporters after a meeting of G7
finance ministers in Frankfurt.

Asian currencies in the past week traded in a tight range,
seemingly unaffected by the yen's swings between the 117.63 and
121-levels in Asian trade.

ABN AMRO said Asian currencies would also be buoyed by a
moderate decline in the rate at which international banks are
cutting their exposures to the region.

"Together with increased (foreign direct investment) and
portfolio inflows, this will help to offset the expected growing
of current account surpluses in the region," and provide support
to the currencies, the investment bank said.

The Singapore dollar, viewed as a proxy currency to the
Indonesian rupiah, and the rupiah itself were the gainers in the
past week from the relatively peaceful Indonesian elections
despite the slow vote count which showed major opposition parties
taking the early lead from the ruling party Golkar.

"As long as the Golkar continues trailing in third place, the
dollar-rupiah should be firmly capped below 8,000," said Barclays
Capital in a report.

The rupiah was unruffled by a warning from Standard and Poor's
that the crisis facing Indonesia's banking sector was the worst
since the 1970s and that Jakarta would need up to 87 billion
dollars and a decade to help the sector recover.