Asian currencies mixed as markets await Fed meeting
Asian currencies mixed as markets await Fed meeting
SINGAPORE (Dow Jones): Asian currencies ended mixed against the U.S. dollar in choppy trading Tuesday, as cautious investors await a decision on the direction of U.S. interest rates when the U.S. Federal Open Market Committee meets overnight.
The Indonesian rupiah and Japanese yen languished against the U.S. dollar, while the Korean won, Thai baht, Singapore dollar and Philippine peso climbed higher. The New Taiwan dollar ended the day flat.
In late trading, the U.S. dollar was trading at 106.61 yen, up from 105.87 yen in late trading Monday, thanks to moderate gains overnight on Wall Street.
"The market believes the Fed will raise rates either today or in November," said a currency strategist at a U.S. bank in Singapore. "There are also signs that growth in Europe will prompt the (European Central Bank) to raise rates (at a meeting) Thursday."
Despite this prospect of higher interest rates, traders and economists expect Asia's currencies to move higher against the U.S. dollar, given strong market sentiment, capital flows back to the region, and a still-bubbling U.S. economy that continues to attract Asian exports.
However, the current fortunes of Asia's trade surplus currencies are in stark contrast to some concerns being raised about the pace and breadth of financial and judicial reforms across the region.
In late trading, the U.S. dollar had fallen to 1207.8 won, down from 1,214.1 won in late Asian trading Monday. The won climbed despite a slumping Korean stock exchange, which shed 3.3 percent Tuesday on rumors there will be more government investigations into tax evasion and illegal fundraising by conglomerates, or chaebol.
Desmond Supple, a regional economist at Barclays Bank in Singapore said South Korea's problems will continue to be compounded by the struggling financial sector, which is heavily exposed to the Daewoo Group's $57 billion debt burden.
"Given that the value of Daewoo's assets falls far short of its liabilities, a hole will potentially be burned into the financial sector if it is forced to absorb these losses itself," he said.
The rest of Asia's regional currencies largely took their cue from the fortunes of the Indonesian rupiah, although the Thai baht managed to take center stage late in the session.
The Bank of Thailand announced late Tuesday that it would impose a 50-million-baht ceiling on onshore loans to offshore counterparties - an across-the-board ceiling that applies to all of an institution's branches.
The surprise announcement pushed the U.S. dollar down sharply against the baht. In late trading, the U.S. dollar was trading at 39.785 baht, well down from 40.35 baht late Monday. Nevertheless, a trader at a Thai bank in Singapore was nonplused, saying the rule had already been adopted by his bank and other Thai banks.
"The announcement was a good excuse to set off some stop-loss (orders), to push the dollar to about 39.72 baht, but we expect it to come back once the knee-jerk selling stops," he said.
Bank of Thailand announcements aside, traders said panic U.S. dollar-selling Monday, prompted by the weekend election of reformist Amien Rais as Indonesia's People's National Assembly speaker, had dissipated.
Although there were still some signs of U.S. dollar-selling early Tuesday, traders said the U.S. dollar was well-supported above Rp 7,600.
In late trading, the U.S. dollar was trading at Rp 7,780, up from Rp 7,710 in late Asian trading Monday.
Against the Singapore dollar, the U.S. dollar was trading at S$1.6887, down from S$1.6910 late Monday. The U.S. dollar did climb as high as S$1.6932 in intraday trading, with many traders expecting the U.S. dollar to drift higher in coming sessions.
On the Philippine Dealing System, the U.S. dollar was trading at 40.265 pesos, down from 40.56 pesos in late trading Monday.
The U.S. dollar was trading against the New Taiwan dollar at NT$31.78, almost unchanged from NT$31.783 in late trading Monday.