By Bob Chen
Feb. 23 (Bloomberg) -- Asian currencies rose, led by South Korea’s won, as speculation the U.S. government will increase its ownership of Citigroup Inc. helped shore up demand for riskier assets.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, climbed from the lowest level in three months after the Wall Street Journal reported that the U.S. may end up holding as much as 40 percent of Citigroup’s common stock, citing people it didn’t identify. The won snapped a nine-day slide on speculation policy makers intervened to stem losses.
“The market found some support in the last few minutes, supporting Asian currencies” said Daniel Soh, an economist at Forecast Pte. in Singapore. Investors “reacted positively to the Citigroup news.”
The won gained as much as 2 percent to 1477.00 a dollar before trading at 1489.00 as of 12:28 p.m. local time, according to Seoul Money Brokerage Services Ltd. Singapore’s dollar rose 0.8 percent to S$1.5229 and Malaysia’s ringgit advanced 0.7 percent to 3.6625.
The won gained the most in a month after it last week declined below 1,500 per dollar for the first time since November.
Defending Currency
South Korea’s currency, the region’s worst performer, plunged 15 percent against the dollar this year on concern sliding exports will drag the economy into its first recession in more than a decade.
South Korea is ready to support its falling currency, Finance Minister Yoon Jeung Hyun said yesterday in an interview from Phuket, Thailand. “Intervention is necessary” in some situations, he said, adding he couldn’t rule out using the country’s foreign reserves of almost $202 billion to arrest the won’s slide.
“The government is trying to defend the currency to calm jitters rather than stem the won’s loss,” said Oh Suk Tae, an economist with Citibank Inc. in Seoul. “The intervention will be limited should the wobbles in the U.S. and Europe continue to test investor confidence.”
Central banks intervene in currency markets by arranging sales or purchases of foreign exchange to influence rates.
Bilateral Swaps
Asian nations agreed yesterday to pool $120 billion of foreign-exchange reserves to help fend off currency speculators amid a global financial crisis. The amount is 50 percent more than was proposed last May, and a broadening of the current arrangement called the Chiang Mai Initiative that allows only bilateral currency swaps.
“It is a step towards more coordination in the region,” said Sebastien Barbe, a strategist at Calyon in Hong Kong, the investment banking unit of France’s Credit Agricole SA. “The countries which have the most financial fragilities are the biggest beneficiaries of this swap, like South Korea and Indonesia. It is to avoid a one-off sharp depreciation or crisis in one or two countries.”
The Philippine peso strengthened 0.4 percent to 48.095 a dollar, according to Tullet Prebon Plc, and the Thai baht advanced 0.3 percent 35.60, according to data compiled by Bloomberg.
Most Asian currencies have tumbled in the past year as regional economies deteriorated. Thailand’s economy shrank for the first time in a decade in the fourth quarter, according to data released today. Reports due this week will show Hong Kong contracted the most since 1999 and Malaysia and India expanded at the slowest pace in at least four years, according to economists in Bloomberg News surveys.
Technical Chart
The yen climbed against the dollar on speculation the global slowdown will increase credit-market losses at international financial institutions, boosting the haven appeal of Japan’s currency.
The dollar dropped against all the 16 major currencies after the Wall Street Journal report on Citigroup.
The yen climbed 0.6 percent to 92.80 a dollar in Tokyo and the euro traded at $1.2913 versus $1.2826 late in New York on Feb. 20.
The ringgit also rose against the dollar as a technical chart traders monitor suggested recent declines were excessive.
The Malaysian currency’s 14-day relative strength index, a comparison of the magnitude of gains and losses, was 70.4 at the end of last week, according to data compiled by Bloomberg. A level above 70 or below 30 signals a reversal may occur.
“The ringgit is oversold and the market may have already priced in most of the bad news in store,” said Suresh Kumar Ramanathan, a rates and currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur.
Gains in the ringgit may be limited before a central bank report this week that economists surveyed by Bloomberg predict will show the economy expanded 1.4 percent from a year earlier in the final quarter of 2008, the slowest in seven years.
Elsewhere, Taiwan’s dollar gained 0.4 percent to NT$34.68 against the U.S. currency and Indonesia’s rupiah was little changed at 11,950, compared with 11,960 on Feb. 20. Vietnam’s dong traded at 17,480.50, versus 17,482.50 last week.
To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net.
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