The Korean won led the rally in Asian currencies on Tuesday as expectations of foreign inflows and a renewed fall in the US dollar buoyed the regionals. The Thai baht rose nearly half a percent, the Singapore dollar climbed to a one-week high of 1.6387 and the Taiwan dollar erased Monday's losses, mimicking the Japanese yen as the US dollar paused in this year's rally.
Some attributed the rebound in the euro and yen to US Treasury Secretary John Snow's reaffirming the need for the market to set the dollar's exchange rate. That followed his comments on Friday suggesting US support for a strong dollar.
"We don't think the US comments have changed the stance on the dollar, so we are still negative on the dollar," said John Cairns, head of research at IDEAglobal.com in Singapore.
"Snow's comments in themselves don't signal a change in US dollar policy, but perhaps they do signal that we are closer to some form of co-ordinated intervention.
"So we stick with our weak-dollar story, but we are more and more concerned about intervention," Cairns said.
Cairns said Asians had been following the yen's trend, so their losses since the beginning of 2005 had been lower than in the case of the euro, which fell about 4 percent last week. James Malcolm, a strategist with Deutsche Bank, said foreign equity investments had not left the region in the past 2 weeks, with the exception of India. Foreigners have been net sellers of Indian equities for three straight sessions, the first such instance of persistent selling since August, he said.
The rupee has been one of Asia's big losers, having shed a percent so far in 2005. In South Korea, the won was buoyed by Standard Chartered Plc's announcement on Monday that it was to buy Korea First Bank for $3.3 billion in cash. The currency rose to 1,042 per dollar, up 17 won per dollar from Friday's trough.
Yet analysts said the funds for that acquisition were unlikely to hit the won markets in one lot, and the Bank of Korea would certainly ensure there was no sudden upward pressure on the currency.
Elsewhere, Chinese yuan premiums in the offshore markets widened as trading on Tuesday progressed, after having narrowed for over a week in sympathy with a firming dollar and falling regional currencies. Analysts said markets had unwound their heavy expectations of a shift in China's policy on the tightly managed yuan during the lean year-end trading sessions. The yuan is effectively pegged near 8.28 per US dollar.
The premium on one-year yuan had risen to about 4,950 points, pricing in a 6.4 percent appreciation, in the last week of December.
That premium was down to 5.2 percent on Tuesday.
China's top foreign exchange regulator, Guo Shuqing, said on Monday that more market reforms were forthcoming but there was no timetable.
Markets were also confounded by the recent reports of increased overseas investment by Chinese firms. While it created an outlet for the excess yuan funds finding their way into China and betting on a revaluation, analysts also said it moderated the expectations for a currency move.
China Ping An Insurance Co became the first domestic insurer to receive a government quota to invest overseas. The State Administration of Foreign Exchange (SAFE) said on Monday it had approved a quota of $1.75 billion for the firm.
Also, top Chinese offshore oil and gas producer CNOOC Ltd is in talks to buy the Asian assets of a foreign oil company. That bid could be around $13 billion.
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