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.