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Tuesday October 21, 2008

Asian currencies rally against US dollar

PETALING JAYA: Asian currencies rose Monday against the US dollar following initiatives by the respective governments in the region to cushion their economies from the impact of the global financial turmoil.

But economists warned that the currency market would remain volatile and gains in regional currencies against the greenback short-lived as the continued repatriation of funds back to the US would strengthen the greenback in the near term.

The ringgit improved 0.1% to 3.522 after the Government announced plans to ease restrictions on foreign investments and inject RM5bil into Valuecap, the state-owned asset management company, to buy undervalued stocks on Bursa Malaysia.

The yen, however, weakened by 0.3% against the greenback. A Bloomberg report said state-backed rescue plans helped lessen borrowing cost between banks, hence encouraging purchases of higher yielding currencies funded in Japan.

South Korea’s won gained 1.4% versus the US dollar, from an intraday high of 8.7%.

Last week, the South Korean government offered a US$100bil guarantee for the next three years on the foreign borrowings of commercial banks and supplied US$30bil to support the foreign currency liquidity of banks.

According to a Bloomberg report, the Indian rupee reversed earlier gains against the greenback due to importers buying the US currency to pay for defence-related import bills.

The Indian central bank had announced a cut in benchmark interest rate by 1 percentage point to 8% from 9% previously.

The rupee weakened by 0.3% to 49 rupees agains the US dollar.

The Singapore dollar rose 0.5% to 1.4761, the New Zealand dollar gained 0.8%, and the Australian dollar strengthened by 1.5% against the greenback at press time.

China’s renminbi closed marginally up by 0.0033 to 6.8299 versus the US dollar.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said the continued volatility of the currency market was due to ongoing de-leveraging activities by global financial institutions.

“The US dollar was so battered that it became attractive again but when the reality of the bailout and potential debts weigh in, investors will start looking at diversifying their assets,” he said.

It would be a “to and fro position” of buying and selling as investors reviewed the range of attractiveness of assets and the depth of the anticipated recession in the US, Yeah added.

UOB Singapore economist Ho Woei Chen said the slight rebound was likely to be temporary as fund managers and companies would unwind their overseas positions and return funds back to the US.

“There is a preference for the US dollar currently because of the panic in the global financial markets,” Ho said. “Asian currencies are viewed as riskier than the greenback despite the financial crisis that started in the US.”

Ho said the US dollar would be dragged down by the imminent recession there coupled with the anticipation that more treasury bills would be issued.

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