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.