Asian currencies pressured by dollar
Asian currencies pressured by dollar
SINGAPORE (Reuters): A disappointing response from the Group of Seven (G-7) finance ministers to Asia's problems gave the U.S. dollar renewed strength yesterday and put all the Asian regionals under pressure.
But rather than stick together as a group, the Asian currencies set off on individual paths downward with the Indonesian rupiah out on its own in front.
"Indonesia is starting to be viewed in isolation," said a currency strategist at a European bank in Singapore.
By 09:00 GMT the rupiah was down 7.8 percent on the day, trading at around 9,500 to the U.S. dollar after being quoted at around 8,800 late on Friday.
Other Asian currencies were down around one to two percent over the same period.
"We look set for a period of yen weakness and dollar strength which means the regionals will see little joy in the near future," the strategist said.
But analysts say domestic developments will take greater precedence over regional worries in the trading session ahead.
In Indonesia this means a focus on the prospects for a currency board, the arrival of an IMF assessment team to determine compliance to the economic reform program, and a watch on political developments in the run up to the presidential election.
Whether or not Indonesia will get a currency board is purely up to President Soeharto, Indonesian Minister of Finance Mar'ie Muhammad told a parliamentary committee in Jakarta yesterday.
But Mar'ie did not give any indication on the president's thinking.
Analysts say the key to whether a currency board may be implemented or not will be the inflation level and whether or not this accelerates too fast following the rapid currency depreciation.
"If Soeharto sees hyper inflation being sustained and Indonesian corporates not in a position to participate in the real economy, he might have no choice but to implement a currency board." said Daniel Lian, Head of Asian Markets Research at ANZ Investment Bank.
"I really don't see it coming before the presidential election, and I still rate the probability less than 50 percent after the elections," Lian said.
Meanwhile, the IMF team in Jakarta will be preparing a report to the IMF's board in Washington which will decide whether to approve a further disbursement of funds from the $43-billion bailout package.
Elsewhere and enjoying a very modest slide in value today was the Thai baht. Here the markets await a series of major government announcements on Tuesday.
The first and main one being the long awaited three-year plan to strengthen the country's battered banking and finance sector.
The plan will be announced along with the details of Thailand's latest review by the IMF of its economic progress. This review is expected to detail fresh economic targets and announce the disbursement of a third tranche of the multilateral bailout package.
Meanwhile, dollar strength against the yen and other majors was keeping the Singapore dollar under pressure.
The Singapore dollar was down about one cent over the day with dealers saying the focus was shifting to the Singapore budget due out on Friday.