Hope of U.S. rate cut buoys SE Asian currencies

Hope of U.S. rate cut buoys SE Asian currencies

SINGAPORE (Dow Jones): Heightened expectations of a cut in U.S. interest rates, coupled with the ongoing liquidation of long U.S. dollar positions by hedge funds, buoyed Southeast Asian currencies through Asian trading hours on Monday.

The Singapore dollar and the Thai baht both strengthened against the U.S. currency, while in North Asian markets the South Korean won also rose.

Through the day, market participants bought up regional currencies on the belief that the U.S. Federal Open Market Committee will trim interest rates when it meets on Tuesday.

Proprietary traders, together with short-term investors, bought back Southeast Asian currencies in order to cover their short positions in Asia, expecting that a cut of 25 or 50 basis points in the Fed Fund's rate will prove negative for the U.S. dollar, said dealers.

But, although a cut in U.S. rates may boost regional currencies over the short term, the longer term impact on the region's markets is likely to be limited, said analysts.

"A cut would be supportive of a recovery in Asian economies, but it would not be sufficient in itself to kick-start that recovery," said Desmond Supple, foreign exchange strategist at Barclays Capital in Singapore.

No recovery is likely without a broad-based agreement on foreign debt restructuring, says Supple. And even if such an agreement were struck between indebted Asian countries and their creditors abroad, there would remain the seemingly insolvable problem of the domestic liquidity crunch afflicting countries throughout the region, he argues.

Late in Asian trading the U.S. dollar was quoted at S$1.6959, down from S$1.7113 late on Friday and at its lowest level in Asian hours in over two months.

U.S. dollar sales also pushed the Thai baht higher from Friday's Asian close, with investment inflows contributing to the local currency's rise, according to traders. But given the speed of the baht's recent surge, which saw the Thai currency rise by around 3.7 percent over the course of the last week, some traders ventured that the Thai currency may be nearing the end of its recent bull run.

Late in Asian trading, the U.S. dollar was quoted at 39.1250 baht, down from 39.4500 baht on Friday.

Among other regional currencies, the Indonesian rupiah ended little changed, with the U.S. dollar closing Asian trading at 10,913 rupiah, compared with 10,900 on Friday. Interest in the market was minimal, according to dealers.

The Philippine peso, however, slipped steeply against the U.S. currency as domestic corporations took the opportunity to buy up cheap dollars, following the peso's rise on Friday. At the close of trading on the Philippine Dealing System, the U.S. dollar was at 43.94 pesos, up from 43.76 at Friday's close.

In North Asian markets, the won (KRW) closed higher against the U.S. dollar as exporters rushed to cash in foreign currency earnings to meet month-end obligations ahead of planned mass strikes among banking employees, which threaten to close the domestic foreign exchange market.

At the domestic close, the U.S. dollar was quoted at 1,382.50 won, down from 1,387 won on Friday.

The new Taiwan dollar, however, eased against the U.S. currency as the market bought dollars ahead of the central bank's quarterly board meeting on Monday.

At the close of domestic dealing the U.S. dollar was quoted at NT$34.557, up from NT$34.545 at Friday's close.

The central bank's announcement that it is to cut domestic interest rates came too late to affect local trading.