Asian currencies mostly lower on U.S. interest rates outlook

Asian currencies mostly lower on U.S. interest rates outlook

SINGAPORE (Dow Jones): Asian currencies were mostly weaker late Tuesday as financial market participants continued to buy dollars on expectations of more aggressive interest rate hikes by the U.S. Federal Reserve.

Leading the currencies lower was the Singapore dollar, which was also weighed down by confirmation Keppel TatLee Bank Ltd. of Singapore may want to buy recently closed Urban Bank of the Philippines.

Late in the day, the rupiah was a touch weaker after it became clear Jakarta and the International Monetary Fund hadn't yet reached agreement on details of a new letter of intent, which would pave the way for the disbursement by the IMF of a $400 million loan to the government.

Coordinating Minister for Economy and Finance Kwik Kian Gie late Monday said the administration had struck an agreement with the fund and would sign a letter of intent Wednesday. But several government advisors told Dow Jones Newswires that an agreement has yet been reached.

After trading as low as Rp 7,975 early in the day, the dollar late in the session was at Rp 8,045, up from Rp 8,030 a day earlier.

Bucking the regional downtrend was the Philippine peso, which rose on fears of further central bank intervention in the wake of its decision last week to lift its overnight borrowing rate to 9 percent from 8.75 percent.

But trading volumes were down ahead of a three-day Golden Week holiday in Japan, and after most Asian markets were closed Monday for Labor Day.

Most recent U.S. data, including gross domestic product, consumer price index, and the key employment cost index have showed a sharp rise in inflationary pressures in the economy.

These continue to fuel speculation the Fed could lift short- term rates 50 basis points - rather than 25 basis points as had been expected - when its monetary policy-setting Federal Open Market Committee meets May 16. The federal funds rate is 6 percent, and analysts expect it could top 7 percent by year end.

The prospect of higher U.S. rates often attracts investors to dollars at the expense of Asian currencies, particularly during the type of financial market volatility experienced in recent months.

Anticipation of aggressive rate hikes by the Fed and confirmation by Philippine Central Bank Governor Rafael Buenaventura of market talk that Keppel TatLee is considering acquiring Urban Bank pushed the Singapore dollar down sharply toward the end of the local trading session.

The purchase would be the latest in a series of foreign acquisitions by local companies including Singapore Airlines Ltd. and Singapore Telecommunications Ltd. Generally, such transactions would require the buyer to sell Singapore dollars in the spot foreign exchange market.

Buenaventura, in a television interview with CNBC Asia, said Keppel TatLee is among a few groups interested in acquiring the Philippine bank, but declined to elaborate.

The sale of Urban Bank, which was closed last week by Philippine authorities after several days of heavy withdrawals by depositors, would likely be through an auction within the next 30 days, Buenaventura said.

The U.S. dollar was quoted at S$1.7165, up from S$1.7090 a day earlier.

Prospective capital inflows from the sale of Urban Bank and fears the central bank might intervene again - traders say it bought pesos last week at around 41.400 pesos to the dollar - lifted the Philippine currency.

In thin trade, the dollar ended at 41.279 pesos from 41.295 pesos Friday.

The baht plunged to a five-month low very late in the day on heavy offshore buying of dollars by hedge funds in a fairly thin market.

An absence of baht buy orders from exporters exacerbated the move, which was the largest one-day percentage change since mid- February.

The U.S. currency was at 38.380 baht, up from 38.060 baht late Monday.

Elsewhere, the New Taiwan dollar weakened sharply as the Weighted Price Index of the Taiwan Stock Exchange closed down 1.6 percent on the day.

Relations with China remain tense, as Chinese leaders await Taiwan's President-elect Chen Shui-bian's inaugural speech May 20 for an indication of his stance on the "one China" principle.

The U.S. currency ended trade in Taipei at NT$30.675, up from NT$30.637 Saturday. But the downside for the local currency could be limited as traders expect Taiwan's central bank will intervene to support it near NT$30.700.

The dollar also ended at 1,110.1 won, up from 1,109.60 won Friday, helped by dollar-buying by the state-run Korea Development Bank.