Asian currencies plummet as market caught out by stock drop
Asian currencies plummet as market caught out by stock drop
HONG KONG (Dow Jones): Asian currencies dropped steeply against the U.S. dollar on Tuesday as foreign exchange market participants, caught out holding long positions in regional currencies by an unexpected decline in local stock markets, rushed to cover their exposure.
The slide in regional currencies was led by the Singapore dollar, which was sold off in response to comments made on Monday by Singapore's Prime Minister Goh Chok Tong, who said he was concerned at the euphoria over Internet stocks.
Traders and investors took the prime minister's remark as a hint that the government regards the Singapore stock market as over-bought.
Those who had previously gone long the Singapore dollar in expectation of further investment inflows into local equities bought U.S. dollars to exit their positions, pushing the U.S. currency up above S$1.6600.
According to traders at both local and foreign banks, the move was reinforced by heavy U.S. dollar buying by the Monetary Authority of Singapore at around the S$1.6600 level.
"Clearly the government doesn't want the Singapore dollar to strengthen," said a trader at one Singapore bank.
Dealers also reported aggressive U.S. dollar purchases by a U.S. investment firm in Hong Kong. While some suggested the buyer had been caught short by the U.S. currency's move upward, others suggested that the buying was speculative, aimed at pushing the U.S. currency higher still by engineering a short squeeze.
Toward the end of Asian trading, the U.S. dollar had been pushed up to trade at S$1.6684, up from S$1.6592 late the previous day. With the MAS apparently prepared to support the U.S. currency at S$1.6600, the market is now looking for the U.S. dollar to breach S$1.6800, according to one dealer.
Trading in the Thai baht followed a similar pattern. Dealers in the offshore market reported sizable dollar purchases against the baht from the same U.S. investment firm, as the Thai currency trailed the Singapore dollar lower.
"Some of the big players were caught short" dollars, said one trader at a Thai bank. If the squeeze proves powerful enough to push the dollar high enough to trigger stop-loss purchase orders at 37.6500 baht, the resulting cascade buying could propel the dollar as high as 37.9000 baht, he warned.
By late in Asian dealing, the dollar had reached 37.5800 baht, up from 37.1350 baht towards the end of Asian hours on Monday.
Although market sentiment towards the Philippines has generally brightened since the weekend appointment of a new cabinet and a fresh economics team, the peso was unable to escape the regional sell-off.
By the close of trading in Manila, the dollar had been bought up to stand at 40.670 pesos, up from 40.300 pesos at the end of Monday's session.
The Indonesian rupiah also dropped on Tuesday, although traders attributed the fall more to domestic political uncertainties than to any regional trend.
Rumors of an imminent cabinet reshuffle in Jakarta continue to unnerve the foreign exchange market, while provincial unrest and revelations about the financial weakness of the central bank and the banking sector at large are deterring all but the boldest inward investors.
Towards the end of Asian trading hours the dollar had been bid up to Rp 7,240, up from Rp 7,170 the day before.
In North Asia the South Korean won fell heavily as the impact of government-sponsored dollar purchases by the state-run Korea Development bank was magnified by unconfirmed rumors that a local merchant bank with big exposure to Daewoo Corp. debt was close to collapse.
By the close of domestic trading in Seoul, the dollar- buying had gained sufficient momentum to push the U.S. currency as high as 1,145.00 won, well above 1,133.90 won at Monday's close.
Among Asian regional currencies, only the New Taiwan dollar made headway on Tuesday, as the Taipei stock market retained its favor with foreign investors.
Even so, Taiwan's central bank stood ready to limit the local currency's advance, holding the U.S. dollar to NT$30.821 at the close, down only moderately from NT$30.835 the day before.