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.