Asian monies down on fears of U.S. rate hike

Asian monies down on fears of U.S. rate hike

SINGAPORE (Dow Jones): Asian currencies slumped on Wednesday as the dollar continued to build momentum ahead of next week's expected interest rate hike in the U.S.

Local factors, such as political uncertainty in Indonesia and a hostage crisis in the Philippines, also weighed on individual Asian currencies.

The Singapore dollar fell to its lowest level in nearly a year, while the Indonesian rupiah and Thai baht tumbled to their lowest levels in roughly seven and five months, respectively.

The dollar held steady against the yen, remaining above a key Y109 support level.

The Federal Open Market Committee, the U.S. Federal Reserve's policy setting arm, is widely expected to boost short-term rates by a half a percentage point when it meets on May 16.

"Going forward, most regional currencies will weaken across the board as we move closer to the FOMC meeting," a dealer at a foreign bank said.

A recent spate of strong economic data in the U.S. has boosted market expectations that the Fed will have to tighten credit aggressively to keep the economy from overheating.

The Singapore dollar dropped sharply in the first hour of regional trading and remained pressured throughout the day. The currency hit it's low point near the close of local trading when the U.S. dollar rose to S$1.7308, its highest level since May 27, 1999 when it touched $1.7317.

Near the end of regional trading, the U.S. dollar slipped back to S$1.7301, up from S$1.7250 late Thursday.

Such levels in the past would have surely triggered intervention by the Monetary Authority of Singapore to support the local currency. But analysts say recent weakness in the yen and euro means the MAS probably has developed a higher tolerance for U.S. dollar appreciation against the Singapore currency.

The rupiah also wilted under prospects of higher U.S. rates. Additionally, the slide was exacerbated by lingering uncertainty about the government's ability to bring about economic reform.

Late Wednesday the dollar was quoted at Rp 8,203, up from Rp 8,070 late Tuesday. Wednesday's closing level was the highest for the U.S. currency since Oct. 15, 1999, when it reached Rp 8,260 in intraday trading.

In Manila, concern over a hostage crisis and fighting between government and Muslim rebel forces in the southern Philippine region of Mindanao added to the gloomy sentiment for the peso.

The dollar closed at 41.370 pesos on the Philippine Dealing System, up from 41.279 pesos late Tuesday.

Traders said relatively thin demand for dollars and some banks taking profits on recent gains in the U.S. currency helped relieve pressure on the peso.

The Thai baht ended lower as dollar selling by local exporters failed to offset a surge in the U.S. currency.

Late in the day the dollar rose to 38.955 baht, the highest level since it touched 38.975 baht on Dec. 1, 1999. The baht edged back at the close, with the dollar quoted at 38.915 baht, up from 38.530 baht late Tuesday.

The New Taiwan dollar moved lower amid concerns over rising tensions with mainland China ahead of the inauguration of president-elect Chen Shui-bian on May 20.

The U.S. dollar closed at NT$30.697, compared with NT$30.690 Tuesday.

The South Korean won ended slightly higher following another session of narrow range-bound trading, traders said.

The dollar finished at 1,109.10 won, down slightly from Tuesday's close at 1,109.40 won.

Dollar selling by local exporters kept pressure on the U.S. currency. In the afternoon, state-run Korea Development Bank intervened in the market after the dollar hit an intraday low of 1,108.70 won, keeping the dollar above the 1,109 won level for the remainder of the session.

Seoul financial markets will be closed on Thursday for a holiday. Trading will resume on Friday.