Rouble devaluation sparks fall in SE Asian currencies

Tue, 18 Aug 1998 | Source: DJ

SINGAPORE (Dow Jones): The devaluation of the Russian rouble triggered a reflex sell-off in Southeast Asian currencies during Asian trading hours yesterday.

Currencies across the region dropped steeply in reaction to news that the authorities in Moscow had widened the rouble's permitted trading band in what amounted to a 33 percent devaluation, although some later recovered from their intraday lows.

"The reaction we have seen is a knee-jerk," declared Raymond Lim, chief regional economist at ABN-Amro.

Although traders and analysts were divided over what, if any, underlying effect the Russian devaluation will have on Asian currencies, market participants' immediate reaction was to seek refuge from any aftershocks by buying the U.S. dollar.

The effect on Asian currencies was more marked. Against the Singapore dollar, which as the most heavily traded of Southeast Asia's currencies is often treated as a proxy for the region as a whole, the U.S. currency rose sharply, assisted by a steep fall in the island republic's stock market.

Late in Asia the U.S. dollar was quoted at S$1.7608, up from S$1.7461 as Asian trading drew to a close on Friday.

Against the Malaysian currency, the U.S. dollar rose to 4.2272 ringgit, up from 4.1800 late on Friday.

In the Shanghai spot market, the U.S. dollar closed unchanged from Friday at 8.2798 yuan.

Against the Hong Kong dollar, the U.S. currency was quoted in Singapore at HK$7.7498, up a fraction from HK$7.7495 towards the end of Asian trading on Friday.

"Psychologically the devaluation of the rouble may have a negative impact on Asia," said Prasenjit Basu, regional economist at CS First Boston in Singapore.

"But the commodity content of Russian exports is very different from Asian exports, so the actual impact should be small."

"In terms of trade and investment between Southeast Asia and Russia, there are no direct links. Putting things in perspective, yen weakness has a direct impact on Asia, whereas Russia is a few steps removed. The key thing here is sentiment," agreed Lim at ABN-Amro.

Among Southeast Asia's other currencies, the baht recovered from its early afternoon intraday low to end the day slightly higher. Late in Asia, the U.S. dollar was quoted at 41.70 baht, down from 41.80 on Friday.

In Indonesia the country's Independence Day holiday passed off peacefully. With none of the violent rioting many traders had feared, the rupiah ended the day little changed in thin offshore trading.

Late in Asia the U.S. dollar was quoted at 12,800 rupiah, up just a touch from 12,750 late on Friday.

On the Philippine Dealing System, at the close of trading the U.S. dollar was quoted at 43.250 pesos, up from 43.05 at Friday's close.

Against the South Korean currency, the U.S. dollar ended trading at 1,333 won, up from 1,325 at the previous close. Against the New Taiwan dollar, the U.S. currency closed at NT$34.761, up from NT$34.726 at Saturday's close.

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