ASEAN currencies stop tracking yen
ASEAN currencies stop tracking yen
SINGAPORE (Dow Jones): After weeks of mirroring the yen's every move, Southeast Asian currencies broke step with the Japanese currency yesterday.
Scenting a weaker monetary policy stance from the Malaysian government, offshore funds took the opportunity to hammer both the ringgit and the Singapore dollar lower, even as the yen remained relatively stable.
Both currencies fell through key support levels, with the U.S. dollar rising to within a whisker of 4.20 ringgit, its highest level since the beginning of February. Against the Singapore dollar the U.S. currency rose to nearly S$1.72
In response to the falls, the baht was also pushed lower against the U.S. dollar. The rupiah and the Philippine peso, however, both managed to claw their way higher.
The foreign exchange market had been on the alert for any signs of a softening in Malaysia's monetary policy ever since it was announced last week that Daim Zainuddin, a close ally of Prime Minister Mahathir Mohamad, was to be appointed to the cabinet as a special minister with responsibility for economic development.
The move was widely seen as strengthening the hand of Mahathir, a vocal monetary policy dove, over that of his hawkish deputy Anwar Ibrahim.
The Singapore dollar also became a target because it is more liquid than other regional currencies, making it easier to trade, and because lower interest rates mean it is cheaper to borrow to sell short.
There are good fundamental reasons to sell the Singapore dollar should the ringgit weaken, however.
"The market perceives that the authorities will maintain the value of the Singapore dollar on a trade-weighted basis. Since Malaysia is Singapore's largest trading partner, if the ringgit weakens, then so must the Singapore dollar," explained Raha at Citibank.
The market brushed off a batch of ex-budget economic stimulus measures announced late Monday in parliament by finance minister Richard Hu.
A downward revision of the government's 1998 economic growth forecast to 0.5 percent to 1.5 percent from 2.5 percent to 4.5 percent previously held few surprises for traders.
Some market participants, however, did point to Hu's claim that the Singapore dollar had actually appreciated against a trade-weighted basket of currencies as evidence that the Singapore currency has further to fall, with Brooks at Santander predicting a year-end level for the U.S. dollar of S$1.85.
The falls in the ringgit and the Singapore dollar also helped to weaken sentiment towards the baht, already undermined by ministerial promises of lower short term interest rates.
Late in the Asian day, the U.S. dollar was quoted at 42.3750 Thai baht, up from 41.6050 late on Friday.
The Philippine peso, however, ended higher, boosted by the firmer tone of the Japanese yen. At the end of domestic trading the U.S. dollar was quoted at 41.90 peso, down from 41.97 peso on Friday.
In North Asia the won also edged higher in line with the yen, with the U.S. dollar ending trading at 1,383 Korean won, compared with 1,386 won on Friday.
Against the new Taiwan dollar, the U.S. currency closed at NT$34.551, down fractionally from NT$34.552 after the central bank sold U.S. dollar to meet quarter end importer demand.