Currencies mixed as life returns to SE Asian markets
Currencies mixed as life returns to SE Asian markets
SINGAPORE (Dow Jones): Southeast Asian currencies were mixed against the U.S. dollar in late trading on Tuesday, as signs of life return to the region's financial markets.
"Some investor interest has returned to Asian equities, despite the fact that lower interest rates have yet to buoy domestic consumer sentiment depressed by unemployment worries," said a regional strategist at Standard Chartered Bank.
"Nonetheless, optimism can be derived from some Asian countries witnessing interest rates below pre-crisis levels because of improving inflation."
The issue now is liquidity, economists and traders said.
"It doesn't take much to push a currency in one direction these days," said a trader at a Japanese bank.
The point is driven home by the changing fortunes of Indonesia's rupiah. In late Asian trading, the U.S. dollar was trading at 7,650 rupiah, down from 7,925 rupiah late Monday.
"We know that some Jakarta banks had to cover some long-held, long-U.S. dollar positions," said Ryan Padgett, treasurer for Bank Brussels Lambert in Singapore.
He predicts the U.S. dollar could fall to 7,000. "There are a lot of domestic players who had established core long-dollar positions; they could be shaken out of the woodwork if there is more strengthening of the rupiah," he said, adding that Bank Indonesia could easily force the issue. "They could sell dollars into the market. It wouldn't take much, and it seems to have free reserves for that purpose, what with IMF (International Monetary Fund) funding and other multilateral loans."
The rupiah's climb against the dollar comes despite the specter of falling interest rates, a phenomenon that usually precipitates a weaker domestic currency.
The U.S. dollar was trading at S$1.6220, up from S$1.6150 Monday. The resilience of the Singapore dollar has left economists shaking their heads. Although they acknowledge the government's efforts to reduce the cost of doing business in Singapore, they wonder when a reckoning will take place.
The mild buying of the Singapore dollar on the trade data fell away quickly, and near-term prospects are for the Singapore dollar to be supported at S$1.6125," said Andrew Fung, a treasury economist at Standard Chartered Bank in Singapore.
Others had expected the U.S. dollar to be trading at S$1.80 to S$2 by this stage. "But a significant factor - the strength of the yen - shows that long-U.S. dollar and carry trade positions are a still big factor," an economist at a Singapore bank said. "There is still unwinding to be done in this environment and that means the regional currencies will perform better."
That became evident in late trading Tuesday, as the U.S. dollar gapped against the yen after European trading rooms opened. The U.S. dollar started spiking, moving quickly to Y118.35, before drifting downward again toward Y116.
This tangible reversal in flows first became apparent in Thailand, where central bank officials have to contend with exporters' complaints about competitiveness.
The U.S. dollar was trading at 37.82 baht, down from 37.98 baht in late trading Monday. The bulk of today's movement was seen early, as Japanese banks sold U.S. dollars for baht, pushing the U.S. dollar as low as 37.73 baht. Traders said there were increasingly encouraging signs that Thai Finance Minister Tarrin Nimmanahaeminda would return from a weekend trip to Tokyo with news that a large part of a $30 billion aid package to the region has been earmarked for Thailand.
The U.S. dollar was also lower against the Philippine peso, trading at 42.89 peso, down from 42.987 peso in late trading Monday. In South Korea, the U.S. dollar was trading at 1,328 Korean won, almost unchanged from 1,325 won Monday; and in Taiwan at NT$32.847, down from Monday's close at NT$32.910.