Closure of Indonesian banks provokes sales of greenback

Closure of Indonesian banks provokes sales of greenback

SINGAPORE (Dow Jones): Southeast Asia's foreign-exchange
markets celebrated some rare good news by bidding up regional
currencies against the U.S. dollar Monday.

In Indonesia, Saturday's official announcement of 38 bank
closures spurred a wave of dollar sales from onshore
participants, which boosted the local currency to an intraday
high more than 10 percent above the five-month low touched early
Friday.

According to a Jakarta-based dealer, the rally in the rupiah
was driven largely by domestic participants exiting the long U.S.
dollar positions they had built up ahead of Saturday's
announcement.

When the dollar hit Rp 9,600 last week, a lot of people went
long (in the U.S. currency), not expecting the dollar to come
back below Rp 9,000," said the dealer, who trades the rupiah for
a European bank in the Indonesian capital.

But with the market largely perceiving the announced bank
closures as a positive development for the banking sector and for
Indonesia's economy in general, market participants began to
unload U.S. dollars.

As the U.S. currency's fall below Rp 9,000 triggered
successive stop-loss sales, the dollar tumbled to a low of Rp
8,775, before recovering slightly in late trading, to end Asian
trading at Rp 8,875, sharply below Rp 9,075 late Friday.

Although some traders believe the U.S. currency should find
support above Rp 8,700, Thio Chin Loo, foreign-exchange
strategist at Banque Paribas, argues that the U.S, currency could
fall as low as Rp 7,000 over the coming months.

"We have seen the dollar's top for now. Improved fundamentals
and continued high yields mean players are increasingly
comfortable buying the rupiah for its carry," she said, referring
to the 30 percent returns available on short-term rupiah
exposure.

Assisted by a buoyant yen, the improved sentiment spilled over
into other regional markets, lifting the Singapore dollar and the
Philippine peso.

In North Asia, the strength of the Japanese currency boosted
the South Korean won and the New Taiwan dollar, both of which
ended the day higher against the U.S. dollar.

Market participants also drew some encouragement from the
passage of the Thai government's bankruptcy bill through the
country's Senate Friday. But with the details of the Senate's
amendments to the bill largely unclear, the baht was sluggish in
responding to the market's bullish air, ending Asian hours a
fraction down from Friday's level.

"This move is very much yen-led," said the head of foreign
exchange at a U.S. bank in Singapore, explaining Monday's
widespread appreciation in the regional currencies. "Although
different currencies are strengthening for different reasons, the
overall tone is much more positive."

Although their rises were more moderate, the Singapore dollar
and the Philippine peso also climbed against the U.S. dollar
Monday.

Against the Singapore dollar, the U.S. currency ended at
S$1.7235, down from S$1.7347 toward the end of Asian trading
Friday.

On the Philippine Dealing System, the U.S. currency also
dipped against the peso, although the move was modest. At the
close, the U.S. dollar was quoted at 38.875 peso, down from
38.970 peso at Friday's finish.

Despite the positive tone prevailing in regional markets
Monday, the baht failed to keep pace with the gains made by
Southeast Asia's other currencies.

Late in Asian trading, the U.S. dollar was quoted at 37.35
baht, up slightly from 37.34 baht late Friday, with traders eying
a range of 36.80 baht to 37.80 baht for the coming sessions.

In North Asia, the U.S. currency softened against both the won
and the New Taiwan dollar, in parallel with its weakness against
the yen. In Seoul, the U.S. currency ended local trading at 1,231
won, down from 1,233 won at Friday's close.

Against the Taiwanese currency, the U.S. dollar closed at
NT$33.097, down from NT$33.112 at the end of Friday's session.