Rupiah hit eight-week low as traders unwind position

Rupiah hit eight-week low as traders unwind position

HONG KONG (Dow Jones): The rupiah was pushed to its lowest
level in nearly eight weeks Tuesday, as foreign exchange traders
continued to unwind cross-currency yield plays.

The move came as the latest in a series of unwindings, which
over the last week has driven the Philippine peso to a five-month
low, the baht to a three-month low and the Singapore dollar to a
seven-month high.

Tuesday, it was the turn of the rupiah to be pushed down, as
dealers reported heavy selling of the Indonesian currency by
banks in both the Singapore and Jakarta markets.

Throughout much of the first half of the year traders built up
long positions in the rupiah, targeting the Indonesian currency's
relatively high yield and potential for appreciation.

Many funded their trades at costs as low as 2 percent via
short positions in the low-yielding Singapore dollar.

But since the U.S. Federal Reserve raised U.S. interest rates
at the end of June, traders have cut their exposure.

After seeing the rupiah top out in late June 43 percent above
its January low, and having watched rupiah yields fall as low as
13 percent from over 60 percent in January, they no longer found
the carry trade so attractive.

Increasingly alarmed at the prospect of further U.S. rate
hikes, dealers bought dollars against the rupiah to exit the long
leg of their position. As successive stop-loss orders were
triggered, the U.S. currency was propelled to a high on Tuesday
of Rp 7,375, its highest level since June 17.

The dollar could go as high as Rp 7,500 or Rp 7,600,"
predicted the rupiah trader at one major U.S. bank in Singapore.

"The market is still long (on) the rupiah and people are still
unwinding their positions."

Dollar selling from Jakarta banks capped the dollar's rise
Tuesday, however. While some traders suspected that Bank
Indonesia had intervened in an attempt to support the rupiah,
others said the banks were merely selling to take profits from
the dollar's run-up.

Late in Asian trading, the U.S. currency had retreated a touch
from its earlier high to Rp 7,335, up steeply from Rp 7,040 late
Monday.

Singapore dollar buying to unwind the other leg of the carry
trade drove the Singapore dollar to a seven-month high in
European and U.S. trading Monday, with the U.S. dollar being
quoted as low as S$1.6635.

The Singapore dollar failed to hang on to its gains on
Tuesday, however, as dealers fretted that the Monetary Authority
of Singapore might intervene to check the currency's rise.

Late in Asia the U.S. dollar was quoted against the Singapore
currency at S$1.6678, up a touch from S$1.6650 the day before.

Elsewhere, the Philippine peso strengthened sharply from the
lows seen Monday.

With the debt repayment-related dollar purchases which have
helped underpin the U.S. currency over recent days now largely
completed, the market saw a rush of position-covering that shook
out many of the speculative traders who had built up long U.S.
dollar positions.

By the end of local trading, the U.S. dollar had dropped back
to 38.890 pesos, down from 39.165 pesos the previous day. At an
unusually heavy $492 million, trading volumes were more than
double what was seen the day before.

Trading in the baht was quieter. Late in Asia the U.S. dollar
was quoted at 37.79 pesos, down from 37.81 pesos Monday.

In North Asia the New Taiwan dollar strengthened despite
constant market rumors of pending Chinese military action against
the island, as the Taiwanese central bank sold U.S. dollars to
support the local currency.

At the close, the U.S. dollar was at NT$32.109, down a shade
from NT$32.112 at Monday's close.

The Korean won eased slightly following moderate dollar buying
by the state-run Korea Development bank. At the close, the U.S.
currency was at 1,199.00 won, up from 1,198.20 won the day
before.