Regional forex markets jolted by peso news
Regional forex markets jolted by peso news
SINGAPORE (Reuter): News the Philippines had caved into pressure and allowed the peso to find its own level reverberated around Asian markets yesterday, prompting Indonesia to widen the rupiah's trading band and a fresh Thai baht plunge.
The peso's sharp depreciation on the news resulted in the second de facto devaluation in the region this month, and with traders still jittery after Thailand's flotation of the baht it impacted on currencies around the region.
While traders had been speculating over whether the peso could hold up, the move to widen the band in which it is allowed to move came sooner than had been expected, as did Indonesia's widening of the rupiah's trading band.
"I don't think this was a real surprise considering the peso had been in a managed float in the first place," said Chiang Yao Chye, economist at CIBC Wood Gundy in Singapore.
"What has been surprising is how the managed float was controlled, it has been more like a fixed rate up to now. We, and a lot of other people, expected the peso to depreciate by the end of the year."
Indonesia reacted to the Philippine move by widening its dollar/rupiah intervention band to 12 percent from 8 percent with the new range 2,374-2,678 to the dollar.
Indonesia has a policy of managed depreciation for the rupiah and the market has for some time been speculating that the intervention band would be widened to allow more room to ease.
The Indonesian rupiah had eased to 2,438.00 to the dollar from 2,432.00 on the peso news. After its own band was widened initial quotes from the market were erratic between 2,420.00 and 2,433.00 but it settled basically unchanged from levels before the news.
The peso news hit dealing screens shortly after traders in Manila and Singapore arrived at their desks and the peso immediately plunged.
In Manila it traded as low as 29.45 per U.S. dollar, over 10 percent down from the 26.40 level the Philippine central bank had been aggressively defending since the baht crisis.
It was not just the peso the suffered, the baht itself sagged to a record low of 30.03 per U.S. dollar and the Malaysian ringgit slid to 2.5050 per dollar from 2.4900.
"After the Philippines decided to let the currency depreciate, everybody was just trying to buy dollars against all the Asian currencies," said one trader at leading U.S. money center bank in Singapore.
Baht trading has been highly nervous since the effective devaluation on July 2 and its plunge today came as negative sentiment spilled over from the peso market with dealers noting that the U.S. dollar was well bid across South East Asia.
The ringgit has been under the speculators' gaze for some time now and as with the peso the pressure built up after the Thai crisis. The Malaysian central bank, Bank Negara, has been fighting hard to fend off selling by aggressive intervention and by forcing interest rates higher.
"It is a battle, it is not really logical, it is not rational," said Desmond Supple, head of Asian currency research at BZW in Singapore.
He said fundamentally Malaysia compares favorably with Thailand but in the current environment it is up to authorities to force a clear-headed assessment of the risk/reward on the ringgit.
Trading in the peso was suspended in Manila today when the sharp drop breached the 1-1/2 percent volatility band of the Philippine Bankers Association (PBA).
When trading in the peso gets underway next week the PBA said it would not include today's sharply lower levels when calculating the day's weighted average.