Won rise continues despite govt threat, rupiah slips
Won rise continues despite govt threat, rupiah slips
HONG KONG (Dow Jones): The Korean won rose Monday to its highest level since late November 1997 despite verbal intervention from the finance ministry, dollar purchases executed by state-run Korea Development Bank and reported direct intervention from the central bank.
Most other Asian currencies also gained, but the Indonesian rupiah slipped back as political tensions in Jakarta and unrest in the provinces continued to unnerve market participants.
The rupiah weakened as players shunned the market, deterred by weekend talk of a possible military coup, firmly dismissed by Indonesian President Abdurrahman Wahid, and news of fresh religious violence in the country's provinces.
Towards the end of Asian dealing Monday, the dollar was quoted Rp 7,278, up from Rp 7,210 Friday.
The won's rise followed its rapid appreciation Friday after newly-appointed Finance and Economy Minister Lee Hun-jai indicated that in future the government would be less inclined to intervene in the market to slow the currency's rise.
Heavy won-buying by offshore financial institutions was credited as the main force driving the won sharply higher Monday.
Early trading saw the dollar pushed down steeply to an intraday low of 1,116.00 won, its lowest against the Korean currency since Nov. 27, 1997.
The speed of the won's run-up prompted the Finance and Economy Ministry in Seoul to issue a statement declaring the won's rise wasn't desirable for the country's economic recovery, especially in the light of the yen's recent fall against the dollar.
The ministry's implied threat, backed by dollar purchases from Korea Development Bank and reports that Bank of Korea itself had been in the market, triggered a flurry of short-covering which propelled the dollar back above its opening level.
But by the close of the local market, the won's natural buoyancy had reasserted itself and the dollar had sunk to 1,121.00 won, down from 1,124.80 won at the end of Friday's session.
Despite Monday's official action to take some of the steam out of the won's rise, most market participants remain strongly bullish on the currency's prospects.
With a current account surplus projected at $12 billion for 2000, strong inward portfolio and direct investment flows, and a relatively tight monetary policy stance aimed at curbing domestic inflation, most South Korea watchers see the won strengthening by 10 percent or more over the year.
Barclays Capital, for example, is recommending short positions in the dollar against the won targeting an exchange rate of 1,050 won over a three month time horizon. Barclays also believes the won will appreciate against the yen, with the Japanese currency sliding to 10.00 won from around 10.70 won currently.
Most other regional currencies also strengthened Monday.
The New Taiwan dollar edged higher on continued healthy inflows of portfolio investment capital despite central bank purchases of U.S. dollars. At the close the U.S. dollar was quoted at NT$30.835, down from NT$30.845 Saturday.
In Southeast Asia the Thai baht inched upwards on generally positive market sentiment, which also helped lift the Philippine peso.
Towards the end of Asian trading the dollar was quoted against the baht at 37.435 baht, down from 37.495 baht Friday.
In Manila the dollar slipped to close at 40.564 pesos, down from 40.585 pesos Friday.
The Singapore dollar slipped back, shadowing the fall of the local stock market, prompting talk that international investment funds were allocating assets away from the safe haven of Singapore to other regional markets following the new year.
Late in Asia, the U.S. dollar was quoted against the Singapore currency at S$1.6741, up marginally from S$1.6730 late Friday.