Asian currencies mixed ahead of expected rate cut in U.S.

Asian currencies mixed ahead of expected rate cut in U.S.

SINGAPORE (Dow Jones): Asian currencies were mixed late Tuesday, languishing within familiar trading ranges, as participants wondered how aggressively the U.S. Federal Reserve would lower interest rates later in the global trading day, dealers said.

The South Korean won, the New Taiwan dollar and the Philippine peso were firmer. The Indonesian rupiah was unchanged, while the Singapore dollar and the Thai baht were slightly weaker.

Sentiment was cautious ahead of an announcement of an interest rate cut following the Fed's policy-setting meeting. Market predictions range from a cut of between 50 and 100 basis points, although many analysts say the odds are in favor of a 50 basis point reduction.

The Indonesian rupiah closed almost unchanged Tuesday as Bank Indonesia sold U.S. dollars to defend the local unit, as it remained pressured by the country's bleak political outlook, dealers said.

Also, dealers said they were keen to sell the dollar to take profit on the currency's recent gains, further helping Bank Indonesia ease the pressure on the rupiah.

The dollar closed at Rp 10,420, down slightly from Rp 10,430 Monday.

Dealers said Bank Indonesia sold the dollar indirectly through brokers near Rp 10,400 and managed to drive the dollar to an intraday low of Rp 10,365.

However, corporate dollar demand emerged pushing the dollar higher.

"Demand for dollar was plentiful near the (10,365) level," said a dealer with a foreign bank.

Dealers said the underlying market sentiment still bullish on the dollar as there is no improvement on domestic political bickering.

President Abdurrahman Wahid said in interview with Dow Jones Newswires Tuesday said that he will challenge any impeachment proceedings in the courts.

Wahid's stern comment did nothing to improve his strained relations with the parliament, dealers said.

Besides selling the dollar to defend the rupiah, Bank Indonesia raised its money market intervention rates by 0.50 percentage points today to increase liquidity.

Although interbank market rates jumped after Bank Indonesia's rate hike, the rates eased later Tuesday as liquidity remained ample. The overnight interbank money market eased to 12.5 percent from 14.5 percent earlier in the day.

Dealers expect the dollar to trade between Rp 10,350 and Rp 10,450 Wednesday.

Asian currencies will likely show a muted reaction if the Fed lowers interest rates by 50 basis points, which the market has fully priced in.

A 75 basis point cut wouldn't surprise financial markets, but would be viewed as "somewhat aggressive" and could provide a relief rally for Asian bourses, which would in turn support regional currencies, said Thio Chin Loo, a currency strategist at BNP Paribas Group.

But any reprieve for Asian foreign exchange markets will likely be short-lived, she added.

"The consolidative mode is set to extend further, but the risk of further downside remains as long as expectations of an extended period of global slowdown prevail," said Thio.

The relative stability of the yen - with Japanese markets closed for a national holiday Tuesday - provided some respite for the won and the New Taiwan dollar, which were hard hit by the yen's fall below Y122.50 against the dollar in Asian trading hours Monday, dealers said.

For the baht and the Singapore dollar, the yen's rangebound movements provided little direction for the currencies.

At 1020 GMT, the dollar was at Y122.82, down slightly from Y122.97 late Monday in New York.

The BOJ said late Monday it will no longer target interest rates in managing monetary policy and instead will seek to inflate money supply.

In Seoul, the won rebounded after skirting around - and briefly slipping below - the psychologically important 1,300 won level against the dollar Monday.

"There is a risk that it would break 1,300 won if the dollar hits Y130," said Thio at BNP Paribas.

The dollar ended Tuesday at 1,295.90 won, down from Monday's close of 1,299.5 won.

Elsewhere, central bank intervention helped buoy the New Taiwan dollar, which slumped to a 10-week low Monday, dealers said.

The U.S. dollar ended higher at NT$32.775, compared with NT$32.778 Monday.

Against the Singapore dollar, the U.S. currency was slightly higher at S$1.7722, from S$1.7710 late Monday.

The Thai currency weakened to 43.965 baht against the dollar, from THB43.925 late Monday.

On the Philippine Dealing System, the dollar closed at its intraday low of 48.440 pesos, down from PHP48.505 Monday.