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The Taiwan dollar steadied on Tuesday after strengthening to a seven-month high, while other Asian currencies backed off multi-year highs on concerns central banks would intervene to stem the rally. The Taiwan dollar gained to 32.80 per dollar in early trades before shedding some its gains. The South Korean won traded close to its seven-year high of 1,091 per dollar reached on Monday and the Singapore dollar retreated from a near five-year high of 1.6488 per dollar.
Traders were concerned about central bank intervention across Asia, led by Japan, South Korea, Singapore and Taiwan.
Asian currencies have rallied since the start of October as the US dollar weakened against major currencies over persistent concerns about the US budget and trade deficits.
"While the longer-term trend of a weaker dollar remains intact, here and there we're going to find people getting cautious," said Song Seng Wun, economist at G.K. Goh Securities in Singapore.
"I won't be surprised to see some intervention by the central banks across the region. They don't want to see one-way traffic in too short a time." Banks and stock markets in Singapore, the Philippines and India reopened Tuesday after a three-day weekend including Monday's holiday for Eid-ul-Fitr. Indonesia is closed all week.
The Korean won has strengthened 5.5 percent against the US dollar since the start of October, while the Taiwan dollar has gained nearly 4 percent and the Singapore dollar has appreciated over 2 percent.
The stronger currencies are helping the region curb imported inflation from oil and other commodities in check.
The Monetary Authority of Singapore, which steers monetary policy through the currency, has maintained its stance of gradual and modest appreciation in the Singapore currency since the second quarter of this year as it seeks to control inflation.
In South Korea, a stronger currency helped keep a lid on prices of imported oil and other commodities and enabled the central bank to cut interest rates last week to revive growth and stimulate domestic consumer demand.
Oil, which was trading on the New York Mercantile Exchange's electronic market on Tuesday around $46.70 per barrel, remains a concern for Asian policy makers, said Song.
Those concerns, coupled with the view that the dollar's weakness was broad-based, will probably moderate the level of intervention by the Asian central banks, he said.
The yen strengthened to a seven-month high against the dollar on Monday, before giving up some ground. The euro has lost some 0.5 percent since touching a record high of $1.3006 last week.
"They can't lean against the wind," said Song. "Speculators continue to hold on to euro-longs, yen-longs, taking a view that the dollar is on a weakening trend."

Copyright Reuters, 2004

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