Dollar demand sends Asian currencies plummeting
Dollar demand sends Asian currencies plummeting
SINGAPORE (Reuters): Asian currencies were pounded lower
yesterday, the first serious trading day of the New Year, by
corporate dollar demand and nagging regional financial woes.
The Indonesian, Malaysian and Thai units all hit fresh lows
during the day.
"There is no silver lining in sight. It has been one bad news
after another like a knock-on effect," said a dealer with a major
European institution.
A dealer with a U.S. bank said: "The market is very bullish on
the dollar against all the regional currencies at the start of
the year. There will be more downside for regionals as the market
is trying to build long dollar positions."
Dealers said there had been no let-up in investor and
corporate demand for dollars across Asia with regional currencies
being dragged along in the wake of dollar/yen.
"This reflects continued investor pessimism in the region as
economic slowdowns, political uncertainty and possible social
unrest weigh on the regional currencies," said Thio Chin
Loo,strategist at Banque Paribas in Singapore.
"The fear of a worsening in the debt crisis in Korea and
Indonesia also limits buying interest and encourages corporate
hedging activity," she added.
Weighing on sentiment was also the heavy need for dollar
hedging by companies exposed to dollar debt and speculative
buying by U.S. funds, dealers said.
The Indonesian rupiah led the crash, tumbling to a historic
low of 6,700.00 on sustained Indonesian corporate appetite for
the dollar.
Political concerns ahead of March presidential elections
accelerated the rupiah's slide. Traders were also nervous on the
eve of the unveiling of Indonesia's national budget.
The Malaysian ringgit was dragged along, crashing to a new low
of 4.0650 against the U.S. dollar, forcing Bank Negara Malaysia
to intervene when it hit 4.02.
The Thai baht tumbled to a new low of 50.90 and the market
remained gloomy about the country's economic prospects.
Thai Prime Minister Chuan Leekpai said on Monday his
government would renegotiate terms of a $17.2 billion IMF bail-
out package.
"The premise on which the terms were based have changed," he
said. "And we will ask if the IMF has a plan to review it."
The Philippine peso was not spared, falling to breach its
third volatility band of 42.65 to the dollar, freezing all trade
by banks for the rest of the day.
Finding it hard to keep its safe-haven status was the
Singapore dollar, which also tumbled to hit 1.7095.
"I don't see any intervention from the Monetary Authority of
Singapore (MAS) except for local banks offering dollars at 1.7050
but it still looks biddish," said a dealer with a U.S. bank.
Although regional currencies were expected to fall further in
the near-term, later this year things might not look so bad.
The sharp fall in local currencies will make the price of
exported goods more competitive so volume should rise while
demand for imported goods will tend to dry up as their prices in
terms of the domestic currency rises.
"By the middle of this year it will be very clear that exports
are accelerating and given the dramatic shrinkage in imports some
countries will register pretty impressive trade numbers," Daniel
Lian, head of Asian Markets Research at ANZ in Singapore, told
Reuters Financial Television.
"Huge current account deficits were a major reason why these
currencies were sold off in the first place... I think in the
second half of this year we could see some good support for the
regional currencies and a turnaround is highly probable."
Below is a breakdown of market action since the beginning of
July when the Asian currency turmoil really took hold.
Currency movements are in percentage terms and reflect the
local unit's fall against the dollar, not the dollar's rise.
Currency Current value Fall since July 1.
Rupiah 6,625.00 -63.30%
Thai baht 50.00 -51.00%
Korean won 1,770.00 -49.85%
M'sian ringgit 4.05 -37.80%
Philippine peso 42.45 -37.60%
Taiwan dollar 33.23 -16.50%
S'pore dollar 1.71 -16.25%
HK dollar 7.75 -0.05%