Asian currencies: peso down on profit-taking

06 Jun, 2007

The Philippine peso retreated on profit-taking on Tuesday while the Malaysian ringgit hit a one-month low as investors bought dollars to cover their short positions, but Asian currencies were mostly steady. The high-yielding peso fell about half a percent to 45.85 per dollar as market players took profit from the currency's recent gains.
It rose more than 1 percent in the previous session and hit its highest level since early 2001. "There has been some profit-taking after the steep move yesterday, so we should see some consolidation," said a trader in Manila.
There was no sign of official intervention to slow the peso's gains, but some traders expect the Philippine central bank to be vigilant as the peso's recent rises have turned it into the second-best performer in Asia after the Indian rupee
The Indonesian rupiah another high-yielder in Asia, fell a fifth of a percent to 8,790 per dollar. The ringgit steadied near 3.40 per dollar after falling as far as 3.4135 per dollar, its weakest level in nearly a month, as foreign players tried to cover their short dollar positions exposed after the ringgit's recent rises.
"I think they are squaring their positions first and then wait and see. At the moment, we have not seen any sign of central bank intervention," said a trader in Kuala Lumpur.
The Shanghai Composite Index, which plummeted as far as 7.25 percent in early trade, bounced back into positive territory in the afternoon on talk that the government would move to restore investor confidence.
"Today's moves are certainly small in the big picture. But you know that they will be among the first hit if risk aversion does rise notably," said Sean Callow, currency strategist at Westpac Banking Corporation.
Christy Tan, currency strategist at Bank of America, said she believed that the carry trade was supported by risk appetite. "However, we are noticing that for offshore investors, some of the Asian FX may not be as attractive for carry trade as before or relative to the Australian dollar, New Zealand dollar and the sterling," she said.
Shahab Jalinoos, currency strategist at ABN Amro, said he believed that the pace of appreciation in Asian currencies may slow after recent gains and amid concerns about heightened central bank intervention to protect domestic exporters.
"But longer term we still believe the presence of excess liquidity in countries like India and Indonesia will keep local asset markets bid and keep central banks tilted towards favouring stronger exchange rates," he said in a research note. The Chinese yuan hit a post-revaluation high of 7.6419 per dollar.
The pace of yuan appreciation has quickened moderately in recent weeks, helped by the central bank's move to widen the daily trading band to 0.5 percent from 0.3 percent on May 18.

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