Rupiah falls with arrival of forward trades deadline

Rupiah falls with arrival of forward trades deadline

SINGAPORE (Dow Jones): Most Asian currencies floundered late Wednesday, with the Singapore dollar hit hard by talk of a possible merger or acquisition involving the country's largest bank and nervousness about the political chaos in Indonesia.

The Indonesian currency weakened to Rp 9,590 against the dollar, from Rp 9,573 late Tuesday, as offshore banks settled their outstanding rupiah transactions with other counter-parties ahead of Wednesday's deadline, dealers said.

"It's all done," said a dealer at another European bank.

The scramble to unwind their forward trades followed Bank Indonesia's controversial foreign exchange rules announced on Jan. 15. The rules are aimed at preventing banks in Indonesia from engaging in forward transactions with offshore parties without any underlying investment purpose.

Current talks among banks in Singapore on the setting up of a non-deliverable currency forward market to replace spot rupiah trading will likely gain momentum over the coming months, dealers said.

A non-deliverable forward market doesn't require any delivery of the rupiah and would likely be beyond Bank Indonesia's jurisdiction, since settlements are made in dollars, dealers said.

Resisting the pressure from its Asian counterparts, the Philippine peso was marginally firmer after a day of range-bound trading. The currency has been boosted by a stabilizing domestic political situation under a new administration and by modest dollar inflows, dealers said.

The Singapore dollar grabbed the limelight, with dealers coming up with diverse reasons to explain the currency's losses.

Against the Singapore currency, the U.S. dollar was up at S$1.7476 around 0840 GMT (3:40 a.m. EST), from S$1.7407 late Tuesday, snapping out of its recent consolidation.

The Singapore dollar started losing ground in London trading hours Tuesday, slipping below S$1.7420 support, when the old rumor that DBS Bank may lodge its bid for Standard Chartered Bank PLC resurfaced, dealers said.

Dealers also attributed the Singapore dollar's weakness to the probability that the Monetary Authority of Singapore will announce a shift in its policy to a neutral bias, from its current mildly tightening stance, in the third week of this month.

"If MAS comes out and bucks expectations, saying 'we'll stick with the tightening bias', then the U.S. dollar will collapse," said Mansoor Mohi-uddin, a regional currency strategist at UBS Warburg.

Currency watchers said with the U.S. dollar having broken above S$1.7470 resistance, they expect it to edge higher, although a move closer toward S$1.7500 could spark fears of MAS intervention.

Especially with the yen having regained some ground over the past few days, "S$1.7500 will be a very difficult level to break," said a chief dealer at a European bank.

"The last time, local names were checking around the S$1.7490 to S$1.7500 levels" it fueled speculation that the MAS, which intervenes through agent banks, might not tolerate a weaker Singapore dollar, the European bank's chief dealer said.

The deepening political crisis in Indonesia had also cast a shadow on the Singapore dollar, especially as market participants are no longer able to trade the rupiah offshore, dealers said.

"The increased instability in Indonesia is causing the Singapore dollar to be used as a proxy," said the European bank's chief dealer.

U.S. funds were aggressively buying U.S. dollars against the Singapore currency and the Thai baht, leading to the slide in these currencies, dealers said.

The Thai currency fell to 42.575 baht against the dollar, compared with 42.345 late Tuesday.

On the Philippine Dealing System, the dollar closed at 48.580 pesos, down from 48.610 Tuesday.

Both the South Korean won and the New Taiwan dollar were hurt by the sharp declines on their respective bourses, but foreign equity fund inflows into the Taipei stock market later Wednesday helped the New Taiwan dollar recoup earlier losses, dealers said.

The U.S. dollar closed unchanged from Tuesday at NT$32.288.

The New Taiwan dollar had earlier fallen to an intraday low of NT$32.315 to the U.S. dollar, also partly due to demand for the U.S. currency in the non-deliverable forward market, dealers said.

In Seoul, the dollar closed at 1,264.30 won, higher than Tuesday's close of KRW1,260.50, as the benchmark stock index tumbled 1.8 percent.