Late dollar rally hits SE Asian currencies

Late dollar rally hits SE Asian currencies

SINGAPORE (Dow Jones): A late U.S. dollar rally against the
yen stripped Southeast Asian currencies of most of their gains
made during Asian trading hours on Tuesday.

After climbing steadily throughout the day in parallel with
the Japanese currency, the ringgit, the Singapore dollar and the
baht were all sold off sharply in response to the yen's afternoon
fall, leaving only the Singapore dollar higher on the day.

"The regional currencies took a turn for the better hinging on
the rise in the yen but it wasn't sustainable," said the head of
regional currency trading at one U.S. bank in Singapore.

The run-up in the regional currencies over the course of the
day never looked that convincing, argued traders in Singapore,
noting that throughout the rally market participants were taking
advantage of the U.S. dollar's weakness to build up long
positions in the U.S. currency, particularly against the ringgit.

But leaving aside the external risk of the yen, further growth
deceleration in Malaysia is going to put more pressure on banks'
asset quality, and the level of non-performing loans will
continue to rise.

In Singapore the use of the exchange rate as a cyclical
response has always been a major policy tool in the past, so on
economic grounds there are reasons to expect both currencies to
go lower soon," Low said.

Bad loans

Other analysts and traders agreed with this view, although
most argued that the regional currencies are unlikely to weaken
substantially in the near future while the market awaits details
of proposed Japanese policy actions to tackle bad loans and
depressed domestic demand.

"The ringgit is going to diverge from the yen," said Thio Chin
Loo, foreign exchange strategist at Banque Paribas in Singapore.
"The basic economic fundamentals are going separate ways.
Fundamentals are a little improved in Japan, but in Malaysia the
government's monetary policy stance remains a big uncertainty."
However with Bank Negara actively mopping up excess ringgit
liquidity from the system on Wednesday, the U.S. dollar is
unlikely to rebound beyond 4.20 ringgit so long as the yen
remains relatively firm, she said.

Late in Asian trading the U.S. currency was quoted at 4.1385
ringgit, up from a low of 4.1025 ringgit and above 4.1250 ringgit
late in Asia on Tuesday.

Against the Singapore dollar, the U.S. dollar was at S$1.6905,
up sharply from an earlier low of S$1.6785, but still below
S$1.6915 late the previous day.

In late trading in the offshore market the U.S. dollar was
quoted at 42.1300 Thai baht, a touch down from 42.1550 baht the
day before.

Among other Asian regional currencies, the rupiah, the
Philippine peso and the won all ended higher in line with the
yen's early run up. With the domestic market closed for a holiday
there was no trading in the new Taiwan dollar.

Late in Asia, the U.S. dollar was at 14,650 rupiah, down from
14,850 the previous day.

At the close of trading in Manila, the U.S. dollar was at
41.42 pesos, down from 41.90 pesos on Monday. The domestic market
was closed on Tuesday.

The U.S. currency also ended at 1,370 won, down from KRW1,373.