Regional currencies down as threat of intervention looms
Regional currencies down as threat of intervention looms
HONG KONG (Dow Jones): Intervention, the threat of intervention and position liquidation combined to drive Asian currencies lower against the U.S. dollar during local trading hours Wednesday.
Although most observers retain their fundamentally positive outlook on Asia's economic recovery, foreign exchange dealers are becoming less sure that improving growth prospects will translate into further short-term currency appreciation.
Sentiment towards the Singapore dollar took an especially hard knock after the Monetary Authority of Singapore made a rare admission, confirming it had intervened in the foreign exchange market late Tuesday to weaken the local currency.
Elsewhere, the authorities in South Korea reiterated their determination to rein in the appreciation of the won, driving that currency sharply lower.
Fears that the Bank of Thailand may follow the example of the MAS and the Bank of Korea and enter the market to buy U.S. dollars helped to push the baht down, although the baht found firm support at the floor of its recent range.
Following the MAS action, analysts said the threat of further intervention will limit potential Singapore dollar gains over the medium term.
"The MAS will continue to respond to investment inflows by intervening," warned Vincent Low, a foreign exchange and fixed income analyst at Merrill Lynch in Singapore.
While inflation remains subdued and economic recovery is still in its early stages, the authority is keen to maintain an easy monetary policy, he explained. And for Singapore, where the exchange rate is the government's primary monetary tool, an easy policy means a relatively weak currency.
Other analysts agreed, saying further local currency appreciation in the second half of the year is unlikely.
Late Wednesday in Asia the U.S. dollar was quoted against the Singapore dollar at S$1.6970, down from its immediate post- intervention high of S$1.7005, but still well above levels of S$1.6890 late Tuesday in Asia.
In South Korea, government-directed dollar purchases by state- run banks helped to push the won lower Wednesday, lending weight to comments from central bank governor Chon Chol-hwan, who said it was "imperative" to slow the won's rise.
By the close of local trading, the dollar had been forced up to 1,173.00 won, from 1,168.00 won the previous day.
Despite the Korean authorities' recent success at supporting the dollar, most market watchers agree that it is only a matter of time before the won resumes its upward trend, as trade and investment inflows force the U.S. currency below 1,150 won.
Intervention also supported the U.S. currency against the New Taiwan dollar following the release of unexpectedly strong trade data for June, which showed an 8.2 percent rise in Taiwanese exports compared with the previous year. At the close, the U.S. currency was at NT$32.285, little changed from NT$32.282 the previous day.
Traders' fears that the Bank of Thailand might follow the lead set by central banks elsewhere in Asia and buy dollars, together with a selloff on the Bangkok stock market, helped to push the baht lower Wednesday.
The extent of the U.S. currency's rise was limited, however, as dollar sales by Thai banks in Bangkok capped the market at 36.9100 baht.
By the end of Asian interbank trading, the dollar had retreated slightly from its high to close at 36.8950 baht, up from 36.7800 baht late the previous day.
The continued liquidation of long-peso positions by foreign players in response to the recent narrowing of the peso/dollar yield spread was blamed for pushing the Philippine peso lower, despite the country's positive economic outlook.
At the local close, the dollar was quoted at 38.300 peso, up from 38.110 peso the day before.
The Indonesian rupiah was largely sidelined, easing slightly on the day. Late in Asia, the dollar was quoted at Rp 6,770, up from Rp 6,712 late Tuesday.