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%