Bailout news brings relief to currencies

Bailout news brings relief to currencies

SINGAPORE (Reuters): Joy was only fleeting for some Asian currencies on Thursday after they were heartened by the International Monetary Fund's (IMF) expanded aid package of US$57 billion to South Korea, dealers said.

A fresh bout of selling from overseas operators drove the Malaysian ringgit and Indonesian rupiah back down the slippery slope in late trade, after they had risen in early trade.

The early mood was mildly euphoric after the aid package boosted confidence in the South Korean won, but even then market participants said they expected more blood-letting from corporate failures and downgrading.

"There was some pull back and consolidation but the bias is still against Asia," a dealer with a Japanese bank said.

In late trade, the ringgit hit an all-time low of 3.7150/7250 per dollar compared with 3.6500/6600 mid-morning.

The assault on the ringgit had ripple effects, bruising Indonesia's vulnerable rupiah most sharply.

Indonesia's central bank intervened to prop up the currency by selectively selling the U.S. dollar from the 3,955 level to the 3,945 level. At 1040 GMT, it stood at 3,940.

Dealers said they anticipated more central bank action to halt further losses if the rupiah drifted to 4,000 per dollar.

A report from research house I.D.E.A. said eyes were focused on the 4,000 level with targets gapping to 4,100 thereafter.

"The idea of a joint intervention 'shelved' till markets calmed down now removes only credible threat against a big figure move on the rupiah," it said.

Early gains in Asian currencies were attributed to profit taking by those who had gone long on dollars in recent days.

The easing of South Korea's foreign exchange shortages with the IMF aid package would cap dollar gains against the won, and therefore, other regional currencies, some dealers said.

"The increased dollar supply before the end of the year will help the won, but I can see the strength being short lived," a dealer with a U.S. brokerage said.

The won/dollar rate perked up to 1,130 before sliding back to 1,163 in late action against 1,196.00 on Wednesday.

While the inflow of billions of dollars for South Korea begins this week, loan defaults and other financial crises could limit a recovery and lead the won back to 1,300, dealers said.

The Thai baht continued to gain on South Korea's loan deal and its central bank's defense of the currency on Wednesday.

Technical support in the short term was pegged at 40.80 per dollar with traders also likely to buy dollar/baht on dips. Dollar/baht was quoted at 41.650/850 per dollar onshore at 1045 GMT against 42.85/42.68 on Wednesday.

The Singapore dollar held steady despite renewed weakness in other regional currencies. It came close to striking 52-month lows at 1.6160 against the dollar, but the trend was not sustained. The currency was at 1.6100/1.6120 at 1050 GMT.

There was no impact on the Sing dollar from an announcement by de facto central bank, the Monetary Authority of Singapore (MAS), that it was unlikely to take part in Seoul's aid package. But dealers said the market was mixed over whether the Sing remained a safe haven currency or if it would decline to stay competitive with the other Southeast Asian currencies.

The Philippine peso eased a notch to 35.150/300 compared with 35.25 previously, but its upside remained limited. The rise was based on a lack of demand for dollars, dealers said.

Taiwan's dollar recovered sharply on the back of the won and Taipei's stronger stock market. The Taiwan dollar was quoted at T$31.866 per U.S. dollar against Wednesday's T$32.201 close.