Hong Kong stirs up shaky SE Asian currencies
Hong Kong stirs up shaky SE Asian currencies
SINGAPORE (Reuters): Southeast Asian currencies redefined volatility yesterday as the bottom fell out of Hong Kong's stock market and triggered shock waves across most of Asia.
Early in the day, the currencies fell as funds fled regional stock markets with the market crisis spreading north to ravage Asia's prospects for a recovery, dealers said.
But then most Asian currencies, led by the Hong Kong and Singapore dollars, rose from the depths just after midday as short-term interest rates shot up, making it painful to run short positions.
"The Hong Kong and Singapore authorities basically engineered the liquidity squeeze," a U.S. bank dealer in Singapore said.
The Hong Kong dollar staged a spectacular bounce to around 7.50 to the U.S. dollar from its opening around 7.75 as overnight rates shot up to 250-280 percent, dealers said.
"We have not seen a move like this in the U.S. dollar/Hong Kong dollar for a long time. Apparently, the move down by 20 big figures benefited the other regional currencies," said Ishak Ismail, market intelligence analyst at I.D.E.A.
The Hong Kong dollar was off its highs, at 7.7065/150 by 1010 GMT on renewed dollar buying out of Europe.
The stodgy Singapore dollar was also hoisted to a high of 1.5675 to the U.S. dollar, nearly two percent up from its early 46-month low of 1.5970. It was at 1.5750/800 at 1010 GMT.
Dealers attributed the bulk of its recovery to overnight rates reaching the dizzy heights of 50 percent -- compared with normal levels below three percent.
"The MAS (Monetary Authority of Singapore) were there in the spot market around the 1.59 area, but I don't think they were there on the way down. I guess they were just squeezing the interest rates up," the U.S. bank dealer said.
Chief executive Tung Chee-hwa, on a three-day visit to Britain, told reporters there was "tremendous determination" to maintain the exchange rate.
"Interest rates have gone up and as a result there is a short- term repercussion on the stock market. This is to be expected," Tung said.
Hong Kong Financial Secretary Donald Tsang said defending the Hong Kong dollar was the government's top priority. Hong Kong Monetary Authority (HKMA) chief executive Joseph Yam said the HKMA had already sold dollars to defend the currency.
Not everyone was convinced by their assurances.
"I think the Hong Kong peg will break," said Daniel Lian, head of Asian markets research at ANZ Bank in Singapore.
He said Hong Kong's stock and property markets would come under mounting pressure as long as the HKMA resorted to high rates to defend the currency.
"To me, they can't sustain these rates for more than a couple of weeks and if they cannot bite the bullet, it (the peg) will go," Lian said.
Other Asian currencies were confined to picking up the slack as the Hong Kong and Singapore dollars hogged centre stage.
Dealers said the central banks of Indonesia and Malaysia were seen selling dollars against their own currencies, taking advantage of the dollar's afternoon downturn.
The Malaysian ringgit was at 3.3600/70 per dollar at 1010 GMT against an early low of 3.4150. The rupiah surged through the 3,600 barrier to 3,560/70 as the central bank's dollar sales triggered stop-loss selling.
The Thai baht was also sharply up at 37.90/38.20 to the dollar in offshore markets against 38.990/39.090 six hours before. Thai markets were closed for a holiday.
The Philippine peso ended firmer at 34.50 to the dollar against Wednesday's 34.68 close after the central bank sold an estimated $25 million at 34.50 pesos as the stock market dived.
Rupiah, gold -- Page 10