Asian currencies mixed on capital control fears
Asian currencies mixed on capital control fears
SINGAPORE (Dow Jones): Southeast Asian currencies were mixed against the U.S. dollar in late trading Wednesday, as fear of capital controls continued to permeate the market, traders and economists said.
"Equity and bond yields have jumped in the last six weeks, a sign that companies concerned about repatriating capital are anxious about the likelihood of currency controls," said an economist at a Hong Kong-based investment house.
"That's why the rupiah is now so stable: no one is touching it because of the worry that the government might drop a surprise on the market. We are currently carrying a clean book in rupiah," said a dealer at a U.S. bank in Singapore.
In a late Asian trade, the U.S. dollar was trading at 10,975 rupiah, up slightly from 10,825 rupiah in late trading Tuesday.
"The market is strictly a commercial one these days. Interbank traders aren't in the market at all," said the dealer.
This marked lack of liquidity is endemic across Asia, traders said.
"Liquidity has by and large left Asia, and moved to the London and New York markets, which do have the liquidity," said a trader at a German bank, adding that the regional foreign exchange market has been quiet since Malaysia imposed capital controls Sept. 1, effectively pegging the ringgit at 3.8 to the U.S. dollar.
The major currencies have now become the focus, along with troubles in emerging markets elsewhere in the world - Latin America, Brazil," said a trader at a Canadian bank, noting that only the Singapore dollar has been relatively active in recent weeks.
The U.S. dollar is also trading at S$1.7257 in late trading Wednesday, almost unchanged from S$1.7250 in trading Tuesday.
"Investors long U.S. dollars see that the market isn't moving much and are using this as an opportunity to book profits," said a trader at a Singapore bank.
Traders and economists said the Singapore economy and currency will ultimately be hurt by the nation's close ties to Malaysia's economy.
"Malaysia is an important trading partner. If the Malaysian situation doesn't lead to a noticeable improvement then the Singapore economy will be hurt, despite talk that the currency will act as a safe haven," said Guonan Ma, head of Asia Pacific economic research at Salomon Smith Barney.
Despite the expected seasonal onslaught, traders expect the baht to stay largely within a tight range - 40 baht to 42 baht to the U.S. dollar.
That stability has prompted some investors to go short on the Singapore dollar, buy baht and take advantage of higher Thai interest rates, traders said. "They're optimistic that the baht will remain stable, based on how the government is handling the economic crisis," said a trader at a Japanese bank.
The prospect of falling exchange rates, a lack of liquidity and governments mulling currency controls has investors looking to North Asia's less opaque markets, economists said.
The South Korean won took center stage Tuesday when the Ministry of Finance and Economy issued a statement cautioning traders against pushing up the dollar too high too quickly. That propelled the won up from an intraday low of 1,400 won. The trend continued Wednesday as the U.S. dollar was quoted at 1,375 won in late trading, compared with 1,382 in late trade Tuesday.
"The currency has regained its stability in part because of its large current account surplus and healthy increase in foreign exchange reserves," Ma at Salomon Smith Barney said.
There are now widespread expectations that U.S. dollars will continue seeping into the market as foreign takeovers of local companies become commonplace, traders said.
On the Philippine Dealing System, the U.S. dollar was trading at 43.770 pesos, up slightly from 43.67 pesos, as the peso weakened in line with the yen during the day.
Against the New Taiwan dollar, the U.S. dollar is trading at NT$35.505, down slightly from NT$35.521 in late trading Tuesday.