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.