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.