Asia currencies firm but still eye Indonesia
Asia currencies firm but still eye Indonesia
SINGAPORE (Reuters): Indonesia's currency board dilemma dominated trade in Asian foreign exchange markets again on Wednesday, but traders appeared to be losing interest as the issue dragged on with no sign of a clear resolution.
Most Asian currencies firmed in thin, technically-driven trade as players became increasingly reluctant to commit themselves against a backdrop of uncertainty in Indonesia.
The rupiah remained comfortably above the 10,000 per dollar level, but its gains were expected to be capped due to persistent anxiety about Indonesia's political and economic outlook.
"There's all this haggling between having a currency board and not having one ... People are pretty nervous. If they decide to go ahead, the IMF may pull out of the rescue package," a senior regional currencies dealer in Singapore said.
Singapore's Business Times newspaper quoted an unnamed senior Indonesian government official as saying Jakarta had decided to jettison discreetly plans to adopt a currency board.
"I can tell you that, as of yesterday, we have been quietly orchestrating the burial of the currency board proposal," the newspaper quoted the official as saying.
But all signals from Indonesia suggested the plan was still on the cards.
New Bank Indonesia (BI) governor Sjahril Sabirin was quoted as saying Indonesia would be in constant touch with the International Monetary Fund (IMF) over the proposed board.
"I believe the IMF does not contradict the government's plan of applying the CBS, therefore we will continue consultations," Antara news agency quoted him as telling BI directors.
"Right now we are preparing the necessary infrastructure which might minimize the adverse effects of the application of the currency system," he said.
Other Southeast Asian currencies benefited from the rupiah's improvement and dealers said market sentiment and technical factors suggested more near-term gains.
"It seems we're going to see stronger Asian currencies against the U.S. dollar in the short term. I wouldn't be surprised to see dollar/Sing back near the recent 1.61 lows or dollar/ringgit below 3.50," a U.S. bank dealer said.
The Singapore dollar surged to a high of 1.6420 to the U.S. dollar as U.S. funds sold dollars from the 1.6740 level, triggering stop-loss sales at 1.66 in a relatively thin market.
"I believe the market is very long dollars. Those who were structurally long above 1.80 were just dumping dollars. I think we could go to 1.63 tonight," a European bank dealer said.
Dealers said Singapore's raft of proposed reforms of the banking and finance sectors was unlikely to have immediate impact.
The Malaysian ringgit firmed through the 3.80 per dollar level, helped by stock market gains and buying of the ringgit/Singapore dollar cross.
The Thai baht and Philippine peso were also stronger but doubts about Indonesia discouraged trade.
"We are just sorting out the corporates and we will go with the market because it's just not worth trying to read it at this point," a local bank dealer in Bangkok said.
While the baht was beginning to stand on its own feet, dealers said a dramatic move in the rupiah would have an inevitable knock-on effect despite signs Thailand was handling its economic woes well.
"The word regional is still quite strong. Although there is a difference, you can't altogether separate the markets," the dealer said.
In North Asia, the Hong Kong dollar was largely steady and interest rates fell sharply on the government's better than expected budget proposal.
Financial Secretary Donald Tsang presented a 1998/99 budget, which included a variety of personal tax allowances and a proposal to cut corporate tax.
The proposed budget could help boost the depressed economy at least in the short run, said Toby Yuen, treasury manager at Bank Brussels Lambert.
Earlier, the Hong Kong Monetary Authority was heard offering term funds with maturities below one month, causing local interest rates to ease.
The South Korean won weakened on dollar short-covering by importers as traders remained uninspired by Standard and Poor's move to raise Seoul's credit rating.
The agency raised its long-term foreign currency credit rating to BB-plus from B-plus on Tuesday, citing government progress in implementing labor, corporate and bankruptcy reforms. It left Korean debt still below investment grade status.
The Taiwan dollar finished firmer, reversing an early decline, on late U.S. dollar sales in the non-deliverable forward market and foreign fund inflows to the stock market.