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.