Asian currencies: peso at new high

27 Jul, 2006

The Philippine peso extended this week's gains to a 2-1/2 month high on Wednesday, while the Indonesian rupiah reversed early falls after Standard & Poor's upgraded the country's credit rating. Other Asian currencies were mixed and generally stuck to tight ranges as investors continued to weigh the outlook for US interest rates.
The peso shrugged off early falls and firmed to 51.72 per US dollar, its highest since May 12, extending gains made on Tuesday amid easing worries about political strife. Dealers said optimism about the economy, highlighted by strong demand at a bond sale on Tuesday, underpinned the peso.
The $750 million bond sale, the first high-yield issue in Asia excluding Japan since an emerging market sell-off in May, was over 16 times subscribed. "Corporate were buying the dollar this morning but demand dried up in the afternoon and there has been aggressive offshore selling," said a Manila trader.
"The peso gains are a reflection of the fundamentals in the Philippines. The numbers are looking good and the bond auction yesterday is a reflection of positive sentiment."
Rupiah sentiment received a boost, after S&P said it had upgraded Indonesia's long-term foreign currency rating by one notch to 'BB-' due in part to an improving fiscal position.
Sin Beng Ong, an economist at J.P. Morgan said the ratings upgrade was six months ahead of expectations. "J.P. Morgan concurs with the rating move both from the perspective of its improved fiscal position and also from its solid external liquidity - reflecting import compression," he said in a note.
The rupiah firmed to about 9,080 per dollar, is highest in two weeks and up about a third of a percent from Tuesday. Asian currencies had opened the day lower as the dollar drew support from US consumer sentiment and home sales data overnight that prompted some in the market to bet on the 18th consecutive rise in US interest rates next month.
But most regional currencies had drifted higher by late trade. Dealers said uncertainty remained about the US rate outlook, keeping Asian currencies range bound.
The Taiwan dollar dipped about a fifth of a percent to 32.86 to the US dollar, keeping to this week's narrow range of about 32.91 to 32.77 per US dollar. "The market appears to be undecided on whether to be bull or bear dollars," said Odie Lee, a trader at Bayerische Hypo Und Vereinsbank in Singapore.
"There appears to be two camps - one that thinks the Fed will hike rates again and another that thinks things will slow down. The market is looking very range bound and I don't see foreign interest coming into Asia for now."
Callum Henderson, head of currency strategy at Standard Chartered, said many investors were staying on the sidelines following a rout in emerging markets in May and early June.
"The leveraged community got so burned in May and June that very few people either have risk on at the moment or are prepared to put it on," he said. "Until a trend develops no one is prepared to do anything."

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