Asian monies under pressure because of rupiah's slide

Asian monies under pressure because of rupiah's slide

SINGAPORE (Dow Jones): The Indonesian rupiah continued to weaken Friday on a series of misstatements by senior policymakers, putting pressure on currencies in other Asian markets.

In late trading Friday, the U.S. dollar briefly surged past the level of Rp 8,700, its highest point since Sept. 27, after the governor of the central bank said he would intervene to support the rupiah only "if it will be effective."

The statement by Sjahril Sabirin was widely interpreted as a sign of weakness by traders already inclined to sell the currency following a statement on Thursday by Indonesia's top economic official, Kwik Kian Gie, who said he couldn't recommend his country to foreign investors.

The rupiah closed in Jakarta at Rp 8,380 against the American greenback after the central bank intervened the market before the close of the trading.

The Thai baht and the Philippine peso were dragged lower by the rupiah. Regional currencies had already been weakened by expectations of an impending rise in interest rates in the U.S., where the Federal Open Market Committee is widely expected to hike its key federal funds rate by 50 basis points when it meets Tuesday.

The Singapore dollar, meanwhile, was higher in late trading Friday following reports that the Monetary Authority of Singapore had intervened to defend the currency on Thursday. The Thai baht, while lower, also gained support from reports of central bank intervention the previous day.

Around 0845 GMT, the U.S. dollar was at Rp 8,485, up from Rp 8,375 late Thursday but off its intraday peak.

Against the baht, the U.S. dollar was at 38.845 baht, up from 38.815 baht late Thursday.

The dollar also rose to 41.475 pesos from 41.430 pesos. The peso continued to suffer from the Muslim insurgency in the southern province of Mindanao, where rebels are holding foreign hostages, said Philip Wee, treasury economist at Standard Chartered Bank.

Among southeast Asian currencies, only the Singapore dollar gained ground following Thursday's intervention by the Monetary Authority of Singapore. The U.S. dollar fell to S$1.7243 from Thursday's S$1.7265.

Traders hesitated to bid the U.S. dollar above the level of S$1.7300 for fear of provoking a further round of intervention by the MAS, analysts said.

"If selling intensifies to the levels we have seen, I'm sure they will step back in," said Philip Wee, treasury economist at Standard Chartered Bank.

But across southeast Asia, currencies are likely to weaken further on expectations that U.S. rates will continue to rise even after next week's Fed meeting. And a volatile U.S. stock market is adding to the uncertainty, prompting investors to withdraw funds from relatively risky emerging markets, analysts said.

Analysts said the supply of U.S. dollars had all but dried up in Indonesia, with exporters withholding the currency from the market in the expectation that the rupiah will fall even further.

Patrick Bennett, currency strategist at Warburg Dillon Read, said the market is waiting for a stronger stance from the Indonesian central bank.

"They don't want to come in just to provide liquidity to the market," Bennett said. "Nothing that's being said is dissuading anyone from holding on to these dollars." The central bank, he said, "Needs to come out and say something stronger."

Analysts said the rupiah would continue to weaken as the market starts to wonder how long Kwik would stay in his job. Some observers said the dollar could quickly jump to Rp 9,000 or beyond.

"The markets will remain very cautious in Indonesia," said David Simmonds, currency strategist at Citibank in Singapore. "There clearly will continue to be talk and speculation about a further cabinet reshuffle."

Indonesian President Abdurrahman Wahid, however, said he had no plans to replace Kwik, calming the markets somewhat. He blamed the weakening currency on the anniversary of 1998 ethnic riots, saying local businesses were holding on to their U.S. dollars for fear of unrest.

In South Korea, the U.S. dollar rose to 1,114.5 won in late trading, up from 1,109.10 won on Wednesday. Thursday was a holiday in Korea. Friday's closing level was the weakest for the won since April 17, when it touched 1,115.30 won to the U.S. dollar.

Analysts said, however, that the won was unusual among Asian currencies in that it would gain against the dollar if authorities tighten monetary policy in response to surging economic growth.

The Taiwan dollar got a boost from a stock market rally. The U.S. dollar ended trading at NT30.739, down from Thursday's close at NT30.752. The central bank also supported the currency, dealers said.