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.