Rupiah down after highly volatile session

Rupiah down after highly volatile session

HONG KONG (Dow Jones): The rupiah ended Asian hours weaker on
Thursday after a highly volatile session, which saw the
Indonesian currency swing by over 5 percent in value during the
day.

Asia's other regional currencies remained tightly range-bound.
Only the Philippine peso showed any clear direction,
strengthening in response to expectations that the central bank
may allow short-term interest rates to creep higher next week.

The lingering scandal centered on Bank Bali, threats of
renewed civil conflict in East Timor and the deteriorating
security situation in the Sumatran province of Aceh were all
blamed by traders for a steep midday sell-off in the rupiah.

Heavy U.S. dollar sales by Indonesian and foreign banks
initially pushed the U.S. currency down to touch an intraday low
of Rp 7,350 midmorning in Asia.

At that level, however, a major buy order executed by a UK
bank sparked a flurry of short-covering, which pushed the dollar
as high as Rp 7,750 by the middle of the afternoon.

"The rupiah is very, very volatile at the moment," observed
the head of trading at one European bank in Jakarta, who said
that poor liquidity - around US$100 million was traded on
Thursday - was exaggerating the currency's price swings.

Everyone went short (dollars) earlier in the week, and then
suddenly there was this major short squeeze," said the head of
regional currency trading at one U.S. bank in Singapore.

Market players who had earlier sold the dollar expecting Bank
Indonesia to support the rupiah suffered a crisis of confidence
on Thursday, explained dealers. As sizable buy orders pushed the
dollar higher, the shorts rushed to cover their positions,
pushing the U.S. currency higher still.

Only solid offers from Indonesian state banks at Rp 7,770,
assumed by traders to have been placed by Bank Indonesia, checked
the dollar's rise Thursday.

According to Hubert Neiss, International Monetary Fund Asia-
Pacific director, the rupiah should strengthen again, once the
month-old Bank Bali scandal blows over.

"If the (Bank Bali case) calms down, the rupiah will
appreciate," he said, adding that the Indonesian government is
"determined to resolve the Bank Bali case speedily and
satisfactorily."

"But you still have to be bearish on the rupiah. All the
domestic news is bad," said one Jakarta-based trader, pointing to
continued political uncertainty in Jakarta and the unrest in the
provinces.

By late in Asian trading the U.S. currency had settled from
its earlier high to be quoted at Rp 7,645, up from Rp 7,590 the
previous day.

Elsewhere in the region, the Philippine peso strengthened
slightly in response to expectations that the government may
allow short-term interest rates to rise rather than allow the
U.S. dollar to breach the psychologically significant 40.00 mark.

In response, the U.S. dollar was sold down to end domestic
trading at 39.740 pesos, down from 39.780 pesos at Wednesday's
close.

Both the Singapore dollar and the Thai baht traded sideways.
Late in Asian dealing, the U.S. dollar was quoted at S$1.6912,
compared with S$1.6925 the day before. Against the baht, the
dollar was at 38.3100 baht, down from 38.3450 baht.

In North Asia the Korean won strengthened slightly, despite
comments early Thursday from the Finance and Economy Ministry,
which said further local currency appreciation wouldn't be
desirable.

At the Seoul close the dollar was at 1,190.50 won, down from
1,193.40 won the previous day.

Against the Taiwanese currency, the U.S. dollar ended little
changed at NT$31.864, compared with NT$31.867 on Wednesday.