Asian currencies firmer on dollar liquidation
Asian currencies firmer on dollar liquidation
SINGAPORE (Reuters): Asian currencies powered higher yesterday as U.S. and European banks and hedge funds cut their long dollar positions after Thailand's surprise scrapping of its two-tier foreign exchange system.
A strong rally in regional stock markets, with key indices in Singapore and Hong Kong rocketing up by as much as 14 percent on the first day of business after extended Lunar New Year holidays, also aided sentiment for the region's currencies.
Dealers said they started to rally late on Friday after Bangkok's move to scrap the two-tier exchange system led to a rally in the Thai baht.
"Basically, today is a spillover effect from the London and New York markets when U.S. names came to liquidate their long dollar positions in other currencies after the Thai move," a regional currencies dealer in Singapore said.
He said some stops were triggered on the dollar/Singapore at 1.7100 and 1.7050 and for dollar/ringgit at 4.1500.
"There seems to be a slight shit in dollar sentiment. People are not so bullish and we could see more correction from these levels," said a dealer with another bank.
Dealers said most of the long dollar liquidation was from U.S. hegde funds, which also tried to cover their short positions in regional stock markets.
"We will see some strengthening of regional currencies for the time being. But whether they can break key supports levels for the dollar remains to be seen," said a dealer.
Dealers said the key technical support levels for the dollar to watch for were 1.70 for the Singapore dollar, 4.00 for dollar/ringgit. 50.00 for dollar/baht and 9,500 for dollar/rupiah.
"Unless these levels are broken, the weak sentiment for regionals will remain because these are seen as key technical levels. The current reprieve may be short lived," said one.
Dealers said the market was also watching how the lifting of the two-tier exchange rate system would help Thailand.
"We don't see any benefit for the time being. Offshore names are still very wary of trading with Thai names. There seems to be some problems in getting lines," a Singapore dealer said.
He said some Thai banks do have credit lines, but these have been "greatly reduced", making it difficult for offshore banks to trade with them.
At 0946 GMT, The Thai baht was quoted at 51.00/50 against 53.50/54.50 on Friday evening.
Dealers said foreign fund managers trying to re-establish a toehold in Asian stock markets like Singapore were also giving a boost to local currencies.
"Money is slowly coming in. So the recent low levels seen last month for regional currencies like 4.90 for dollar/ringgit, 1.80 Singapore dollar, 16,500 for dollar/rupiah will be difficult to reach for the time being," one dealer said.
The Singapore dollar surged to a high of 1.70 to the dollar briefly before local banks came in to buy U.S. dollars aggressively at that level. The Singapore dollar was at 1.7170/10 in late afternoon dealings.
Dealers said the Singapore dollar was likely to trade between 1.7150 to 1.7250 in the near term while trying to see which direction it would go.
The Malaysian foreign exchange market was closed for a national holiday, but trading in Singapore saw good demand for the ringgit as funds cut long dollar positions.
The ringgit was firmer at 4.1500/00 in late trading against a low of 4.250 earlier.
Dealers said the view on Indonesia remained cautious as many problems remained unresolved, including the issue of who would be vice presidential candidate in March elections almost guaranteed to return President Soeharto to office.
But the presence of the central bank offering dollars at around the 11,000 rupiah level kept rates steady, dealers said. Spot rupiah rose to a high of 10,000 from an opening of 10,100/10,400 before easing to a day's low of 10,700. It ended in Jakarta at 10,300. In Singapore, the rupiah strengthen further to 9,700/0550 in late trade.
"People are still buying dollars on dips because nothing has changed very much," a dealer said.
Dealers said the rupiah contagion looked contained judging by the movements in recent weeks of other regional currencies which had been relatively steady despite wide rupiah fluctuations.
The following table shows the drop in value of Asian currencies since the crisis began in July. Currency movements are in percentage terms and reflect the local unit's fall against the dollar, not the dollar's rise.
Currency Current value Move since July 1.
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Indonesian Rupiah 9,800.00 -75.18%
Thai Baht 50.70 -48.92%
Korean Won 1,556.00 -42.93%
Malaysian Ringgit 4.15 -39.28%
Philippine Peso 41.00 -35.37%
Taiwan dollar 33.33 -16.74%
Singapore dollar 1.72 -16.72%
Hong Kong dollar 7.74 0.09%