Rupiah falls as Singapore dollar gains

Rupiah falls as Singapore dollar gains

SINGAPORE (Dow Jones): The Indonesian rupiah slipped back on Thursday even as the Singapore dollar regained some of the ground it recently lost against the U.S. dollar.

But for the most part trading in Southeast Asian foreign exchange markets was thin and desultory during local hours on Thursday.

In North Asia the won was forced sharply lower from the open by an early spurt of dollar-buying, which was widely attributed to intervention by the Bank of Korea.

In later trading, however, the Korean currency's natural buoyancy re-asserted itself, as the won partially recovered from its early low.

In Jakarta, as local dealers returned to their desks Thursday morning following a two-day holiday, a flurry of U.S. dollar purchases pushed the rupiah down steeply from the open, with the U.S. currency rising to an intraday high of around Rp 8,700.

Domestic players, said traders, were buying dollars in anticipation of heightened social and political tensions following the end of Ramadhan earlier in the week.

Although the U.S. currency was capped by offers from offshore players looking to book profits from the dollar's recent climb, the U.S. currency should still head higher in the short term, according to most traders.

"The situation in Indonesia can only get worse," declared the head of regional foreign exchange at one U.S. bank in Singapore. "The dollar is definitely going higher. We will see Rp 8,850 in the next few days."

As Asian interbank trading drew to a close on Thursday, the U.S. currency was quoted at Rp 8,645, up from Rp 8,470 late in Singapore on Wednesday.

Other dealers, however, were reluctant to attach much significance to the rupiah's tumble.

"You must understand that liquidity is very bad, and that it really doesn't take much to move the market," said the Singapore- based regional head of foreign exchange at one major European bank.

For example, the U.S. dollar's sudden advance to Rp 8,550 from 8,450 early Thursday was driven by the execution of an order worth a mere $500,000, he said.

Even as the rupiah slipped against the dollar, sales of the U.S. currency against the Singapore dollar pushing the Singapore currency higher.

Late in the Asian day, the U.S. dollar had dropped to S$1.6755, down from S$1.6800 late on Wednesday.

One trader at a Singapore bank attributed the U.S. dollar offers to pre-weekend position squaring by market players who had previously gone long the U.S. currency anticipating that the yield differential between the Singapore dollar and the U.S. dollar would push the local currency lower.

With overnight interbank rates on the Singapore dollar currently below 0.5 percent, in contrast to rates of around 4.50 percent on the U.S. currency, for weeks traders have been predicting that the Singapore dollar would weaken, with the U.S. dollar strengthening to levels around S$1.70.

But the expected slide in the Singapore dollar has failed to take place and the Singapore dollar carry trade appears to be losing its luster.

"Some of the weaker players are getting out. They have realized that the profit potential is not that great," said the U.S. bank trading chief.

According to Wong Keng Siong, regional economist at Dai-Ichi Kangyo Bank in Singapore, foreign exchange traders were wrong to assume that ultra-low interest rates necessarily meant a weaker Singapore dollar.

Singapore's low interest rates are the result of hefty liquidity injections by the Monetary Authority of Singapore, he explained.

"The MAS is simply injecting liquidity to match the inflows of offshore fund," he explained.

Elsewhere in Southeast Asia, activity was generally quiet Thursday.

Against the Thai baht, the U.S. dollar eased slightly, ending Asian interbank trading at 36.4350 baht, compared with 36.5100 the previous day.

The U.S. dollar also lost ground to the Philippine peso, ending the domestic session at 38.255 pesos, down from 38.370 at Wednesday's close.

In North Asian markets, the South Korean won started the day in dramatic fashion, falling sharply as the U.S. dollar soared to an intraday high of 1,179.50 won within minutes of the open, rising from 1,165.50 at the previous day's close.

Traders reported heavy dollar-buying interest from local banks, hinting that the Bank of Korea was behind the move.

By the end of domestic trading, however, the U.S. dollar had given back some of its early gains, to end the day at 1,172.30 won.

Meanwhile the new Taiwan dollar ended all but flat against the U.S. dollar, which at the end of local trading in Taipei was quoted at NT$32.261, compared with NT$32.263 at Wednesday's close.