Yen stability boosts SE Asian currencies

Yen stability boosts SE Asian currencies

SINGAPORE (Dow Jones): Southeast Asian currencies continued to
ride higher on the back of the yen's precarious stability during
Asian trading hours yesterday.

In quiet trading, the baht, the Philippine peso, the ringgit
and the Singapore dollar all edged higher against the U.S.
dollar, prompting some observers to predict that, should the yen
remain steady, Southeast Asian markets may be in for a repeat of
February's bear market rally.

"I don't see much downside in the short term for the regional
currencies," said Fong Cheng Hong, regional economist at Nomura
Singapore.

"At current levels there is a lot of interest from foreign
investors, particularly in Europe, to pick up cheap assets in
Asia. As the money flows in, it will support the regional
currencies," she said.

Fong added, however, that the risk of further yen depreciation
exerting a drag on Asia's other currencies will cap their upside
for the time being.

The Thai baht and the Philippine peso have the most potential
to rally against the U.S. dollar on an inflow of foreign funds,
potentially reaching levels around 38 Thai baht and 38 Phlippine
peso respectively, say analysts.

Late in Asian trading the U.S. dollar was quoted at 40.9650
Thai baht, compared with 41.4550 Thai baht towards the end of
interbank trading in Singapore on Monday.

At the close of trading on the Philippine Dealing system, the
U.S. currency was at 41.265 Philippine peso, down from 41.500
Philippine peso at Monday's close.

Although the ringgit also strengthened on Tuesday, fears over
the integrity of the banking sector and the unity of the
political leadership continue to weigh heavily upon the Malaysian
currency, say analysts.

Toward the end of Asian trading Tuesday the U.S. dollar was
quoted at 3.9210 Malaysian ringgit, compared with 3.9462
Malaysian ringgit late on Monday.

As for the rupiah: "The very best case scenario is that the
rupiah will strengthen to 13,500 - and that's factoring a lot of
good news," said Fong at Nomura.

The high degree of perceived political risk in Indonesia means
that investors will steer clear of the country for the
foreseeable future.

At the same time, Indonesian capital will continue to flee
offshore in search of safe investment havens, while maturing
forward contracts will maintain a steady demand for U.S. dollars,
driving the hapless rupiah ever lower, argues Fong.

Late in Asia the U.S. dollar was quoted at 14,525 rupiah,
compared with 14,650 late the previous day.

Analysts maintain that at current levels, the Singapore dollar
is overvalued on a fundamental basis relative to competitor
countries such as South Korea and Taiwan and argue that the
currency is set to depreciate further over the long term.

In the immediate future, however, the Singapore dollar is
likely to strengthen further.

Although there is strong U.S. dollar buying interest stationed
around S$1.6350, a rally as far as S$1.6000 is possible should
the yen recover to around Y130 to the U.S. dollar, they say.

In late trading in Asia on Tuesday the U.S. currency was
quoted at S$1.6378, compared with S$1.64996 towards the end of
Monday's session.

In north Asia, the Korean won ended higher in line with the
regional trend, with the U.S. dollar finishing domestic trading
at 1,383 Korean won, down from 1,393 Korean won at Monday's
close.

The new Taiwan dollar, however, slipped back against the U.S.
currency.