Asian currencies mostly lower ahead of likely U.S. rate hike
Asian currencies mostly lower ahead of likely U.S. rate hike
SINGAPORE (Dow Jones): Asian currencies were mostly lower late Tuesday in quiet trade ahead of an expected interest rate hike by the U.S. Federal Reserve.
The Indonesian rupiah was slightly weaker, but well above its intraday low.
Fears of intervention by Indonesia's central bank and state banks lifted the currency, which has plunged as much as 9 percent over the past week.
It rallied sharply from a near seven month-low after Indonesian President Abdurrahman Wahid urged the central bank and state-run banks to support the flagging local currency.
Syetarn Hansakul, an analyst with WestLB, said "Wahid's intervention comment today helped lend some support but may not be enough if U.S. FOMC (Federal Open Market Committee) impacts negatively tomorrow."
It is also unclear if Wahid could order the central bank, which in theory works independently from the president, to defend the local currency, analysts said.
Wahid also instructed Finance Minister Bambang Sudibyo to review the economic projections in this year's budget, which appear too optimistic. The government had based the budget on an exchange rate of Rp 7,000 to a dollar.
The U.S. currency late in the local session was at Rp 8,545, marginally up from Rp 8,541 late Monday, but well below its intraday high of Rp 8,730.
The Thai baht, Philippine peso and New Taiwan dollar also drifted lower on expectations of an aggressive U.S. interest rate hike later Tuesday, while the South Korean won bucked the regional downtrend.
The FOMC is widely expected to raise short-term interest rates by half a percentage point in an effort to slow rapid U.S. economic growth to a more sustainable rate.
As the market has largely factored in a hike of this magnitude, some analysts say they expect a "relief rally" in Asian currencies in the short term if this occurs.
The extent of the rate hike is expected to be influenced by U.S. inflation data, to be released before the FOMC meets.
The looming U.S. rate hike and a domestic political crisis embattling Philippine President Joseph Estrada's administration dragged the Philippine peso to a 19-month low.
The Estrada administration has been widely criticized for its handling of the country's hostage crisis.
The dollar's gains were, however, capped at 41.640 pesos as banks that were long on dollars opted to take profit at this level before repurchasing the U.S. currency at a lower rate, dealers said.
The dollar closed at 41.630 pesos on the Philippine Dealing System, up from of 41.560 pesos on Monday.
Philippine central bank Governor Rafael Buenaventura said on Tuesday that while the peso should strengthen after jitters over the Fed's rate decision subside, it will likely remain above 41 pesos to a dollar in the near term.
Buenaventura reiterated that the central bank is prepared to provide dollar liquidity to the market if necessary, but this hasn't been needed yet.
The South Korean won ended little changed against the U.S. dollar as afternoon dollar selling by local banks offset earlier dollar buying by overseas players in the non-deliverable forward market, traders said.
The dollar finished at 1,114.60 won, barely changed from Monday's close at 1,114.70 won.
Bucking the regional weakness, the Singapore dollar was slightly stronger as participants locked in profits on some long U.S. dollar positions ahead of the FOMC's meeting, traders said.
Around 0950 GMT (5:50 a.m. EDT), the U.S. dollar was at S$1.7280, down from S$1.7296 late Monday in Asia.
A 50 basis-point U.S. rate increase will be neutral for the Singapore dollar, traders said, adding that they expected the U.S. unit to continue trading in a range of between S$1.7250 and S$1.7350.
However, the outlook for the likely level of the Singapore dollar has been clouded by the expectation that the Monetary Authority of Singapore, the de facto central bank, would intervene at the upper end of that range.