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.