Most Asian monies up, S'pore dollar flounders

NETTY ISMAIL, Dow Jones, Singapore

Most Asian currencies were slightly firmer late Wednesday, although the Singapore dollar floundered on concerns over the severity of the economic downturn, and as the market perceived a tacit acceptance by the monetary authority for a weaker currency, dealers said.

The rest of the region's currencies consolidated in narrow ranges, with fears of central bank interventions and dollar sales by exporters in some markets restraining the U.S. currency's rise.

Concerns over the potentially adverse impact on global economies from the U.S.-led military retaliatory strikes on Afghanistan, and fears of reprisals by terrorists, have clouded the dollar's near-term outlook, dealers said.

The Singapore dollar bucked the trend, skidding to 10-week lows after the government slashed its official gross domestic product forecast for 2001 to a 3 percent contraction, from its previous forecast of 0.5 percent to 1.5 percent growth.

This is the third time this year that the government has lowered its full-year GDP forecast, as the economy contracted by a worse-than-expected 5.6 percent in the third quarter from a year ago, according to an advance estimate.

The Singapore dollar received another blow when the central bank said it has decided to widen its policy band for the Singapore dollar to allow a greater flexibility in managing the currency, amid increased volatility in foreign exchange markets, dealers said.

But although the central bank cited concerns over the dire state of the economy, the Monetary Authority of Singapore refrained from shifting to a loosening policy bias, as was expected by some market observers, from its neutral stance.

"The widened policy band will continue to be centered on a zero percent appreciation" of the Singapore dollar against the currencies of its major trading partners and key competitors, the MAS said.

"Widening the band is tantamount to a loosening," said a dealer at a foreign bank.

Even then, market observers said the Singapore dollar's decline will likely slow from here, following its precipitous fall since Tuesday.

The MAS said the trade-weighted Singapore dollar is currently in the weaker half of its policy band.

Singapore's DBS Bank said the U.S. dollar's rise will likely be capped around S$1.8180, based on Wednesday's trade-weighted calculations.

"While the market is now focused on the recession in Singapore, it should not lose sight of the fact that any sudden change in external factors that hurt the broad U.S. dollar sentiment could send (it) down just as quickly (against the Singapore dollar) as it has risen in past weeks," said DBS' market strategist, Philip Wee.

The Singapore dollar had slid to as low as S$1.8088 against its U.S. counterpart early Wednesday.

But the U.S. currency soon retreated swiftly to around S$1.8020 on U.S. dollar sales, led by a large local bank, which had been snapping up the U.S. currency in recent sessions, and a U.S. investment house.