Asian currencies down late on yen, war fears grip market

Singapore (Dow Jones): A weak yen dragged most Asian currencies down late Friday as market players covered short-dollar positions amid worries of the threat of war between the U.S. and Iraq.

The dollar was bid up against regional units as heightened risk aversion gripped the market, but trading was largely range-bound as participants refrained from taking strong positions.

"The main thing (was concern about) the war breaking out. I think the market perceives it as bad for Asia and so the dollar was bid up," a regional currency trader at a Singapore-based European bank said.

Traders said Asian currencies mostly followed the dollar/yen, which itself was locked in a tight trading range on concerns about the U.S. and Japanese economies following sharp declines in their equity markets, and mixed signals about the U.S. economy.

"There's genuine uncertainty about what the economic situation in this region is. People are not taking structural positions now," said Bhanu Baweja, currency strategist at UBS Warburg in Singapore.

The Nikkei 225 index fell 1.01 percent Friday, while overnight, the Dow Jones Industrial Average fell 1.68 percent.

Short covering on the dollar was most obvious against the Singapore dollar, the Thai baht and the South Korean won.

The Philippine peso moved in tandem with regional currency movements, but the Indonesian rupiah managed to hold steady.

There was no trading in the New Taiwan dollar as Taiwan's financial markets were closed due to Typhoon Sinlaku.

In South Korea, many market players were short on the dollar/won going into Friday's session due to existing short yen/won positions, dealers said.

Shorting the yen/won involves selling yen to buy dollars and then selling the dollars for won.

Early afternoon, the dollar's gains against the yen helped these traders but when the U.S. unit started its sharp climb against the won as well, they were forced to cover their short dollar/won positions.

The U.S. dollar ended at 1,196.8 won, up from 1,191.0 won Thursday, after trading between 1,191.8 won and 1,197.6 won during the day.

The dollar's trading range against the won next week is slightly biased to the downside, said Ron Leven, a Lehman Brothers currency strategist in Tokyo.

"We think the U.S. employment numbers tonight (Friday) will be on the soft side, and that's going to weigh on the dollar," he said.

Against the rupiah, the dollar maintained a steady to slightly higher note in listless trading ahead of the weekend, with dealers predicting it might be boosted by local corporate demand next week.

Late in Asia, the dollar was quoted at Rp 8,875 from Rp 8,865 Thursday.

The dollar closed at 51.86 pesos on the Philippine Dealing System, up from 51.72 pesos at the previous day's close, amid uncertainty about the U.S.-Iraq situation.

The possible cancellation of a planned dollar-linked peso note was also of concern after the government raised US$300 million from a new bond issue, a trader at a foreign bank said.

The trader said some banks sold dollars earlier in the week to accommodate the dollar-linked notes, which are similar to forward currency contracts.

The dollar drifted higher against its Singapore counterpart, tracking the yen's weak tone as market players covered short-dollar positions, a dealer at a European bank in the city state said.

A late afternoon rally pushed the dollar as high as S$l.7508, breaching S$l.7500 psychological resistance for the first time this week. Late in Asia, the pair was quoted at S$l.7482 from $1.7438 Thursday.

Short covering by onshore and offshore players ahead of the weekend also drove the dollar higher against the Thai baht. Late in Asia, the dollar was quoted around 42.30 baht from 42.13 baht Thursday.