Asian currencies mostly low, peso down on new rates system
Asian currencies mostly low, peso down on new rates system
SINGAPORE (Dow Jones): Most Asian currencies were slightly lower late Monday in cautious, range-bound trading ahead of the U.S. Federal Reserve's policy meeting.
While the Federal Open Market Committee is widely anticipated to hold interest rates at its two-day meeting, which starts Tuesday, the market's focus has shifted to the FOMC's next meeting in August, when the Fed is expected to resume its tightening cycle, analysts said.
The Fed, which has raised rates by a total of 175 basis points over the past year, is expected to announce after its meeting Wednesday that the risk for the U.S. economy remains tilted toward inflation, analysts said.
"Most people don't expect any rate change, but are looking out for the statement after that and a possible hawkish overtone from the Fed," said Thio Chin Loo, foreign exchange strategist at BNP Paribas Group.
In the Philippines, increased confidence that the Fed won't raise rates this week prompted the Philippine central bank to replace its single-rate borrowing system with a three-tier system, analysts said.
The unexpected move, which effectively amounted to a rate cut, dented the Philippine peso.
The dollar closed at 42.910 pesos on the Philippine Dealing System, up from Friday's close of 42.845 pesos.
Earlier Monday, the central bank effectively cut its overnight borrowing rate from a flat rate of 10 percent to a three-tier system that offers a lower rate for placements over 5 billion pesos. Banks will get an interest rate of 10 percent for the first 5 billion pesos in funds placed in the overnight borrowing facility and 8.5 percent for the next 5 billion pesos. Funds in excess of 10 billion pesos will earn 7 percent interest.
The central bank said the move was aimed at encouraging banks to use their excess funds to lend to their clients rather than invest in the monetary authority's overnight paper.
"This is a scheme to unwind the past rate hikes by the (central bank) to help release funds for Philippine banks," said Syetarn Hansakul, an economist at WestLB Research in Singapore.
President Abdurrahman Wahid's denial Monday of an imminent cabinet reshuffle failed to ease investors' concerns over the uncertain political climate in Indonesia.
Around 0940 GMT, the dollar was at Rp 8,683, up marginally from Rp 8,660 late Friday.
Market participants are holding on to their long dollar positions as the market braces for more political turbulence ahead of the mid-August meeting of the country's highest legislative body and amid doubts about Wahid's ability to hold on to power, dealers said.
Strong offshore dollar-selling interest around Rp 8,700, mostly by U.S. banks, kept the U.S. currency capped, dealers said. The U.S. currency found strong support from local companies that had to meet foreign obligations buying dollars, especially below Rp 8,650, they added.
Keen corporate demand for U.S. dollars also weighed on the Singapore dollar, which was at S$1.7344 against the U.S. currency, compared with S$1.7311 late Friday. Offers to sell the U.S. currency around S$1.7350, however, halted the U.S. dollar's ascent, dealers said.
In Thailand, the dollar rose to 39.125 baht, from 39.100 baht late Friday, after being hemmed in around 39.095 baht to 39.135 pesos.
A decline in Taiwan's stock market and caution ahead of the Taiwan central bank's monetary policy-making meeting pressured the New Taiwan dollar, dealers said.
The U.S. dollar finished higher at NT$30.797, compared with NT$30.767 at Friday's close.
Bucking the region's weakness, U.S. dollar-selling by local exporters and the Japanese yen's resilience lifted the South Korean won, dealers said.
The dollar finished at 1,118.1 won, down from Friday's close of 1,119.40 won.
The dollar was at Y104.36, below Y104.63 late Friday in New York, after Japan's Liberal Democratic Party-led coalition retained power in elections for Parliament's lower house Sunday.