Rupiah sinks further over riots; baht, peso also lose value

Rupiah sinks further over riots; baht, peso also lose value

JAKARTA (JP): The country's beleaguered rupiah fell again on
Friday hitting an intraday low of 9,050 against the U.S. dollar
as continued riots weighed down the currency.

The rupiah, which opened at 8,600/8,800, broke through the
9,000 level as fresh dollar bids by offshore and local operators,
reacting to the worsening social unrest, poured in.

"Sentiment on the rupiah remains bearish due to spreading
social unrest in the country," a dealer with a joint venture bank
said.

Reports said that at least 45 people have died in three days
of communal clashes in Maluku, while riots in major cities across
the country also flared up, hampering the country's efforts to
escape from the ongoing political and economic crises.

Dealers said, however, that the rupiah managed to bounce back
to close at 8,925 as some offshore operators, especially from
Singapore, sold their dollar holdings to cash in the profits they
made the previous day.

"Some offshore operators who bought dollars at 8,500 sold them
back to cash in their gains," another dealer said.

The rupiah stood at around 8,400 against the greenback prior
to the country's two-day Idul Fitri holiday earlier this week,
prompting some offshore market participants to speculate on the
currency.

Dealers said that persistent outbreaks of social unrest
coupled with strong local demand for the dollar would likely
cause the rupiah to break the 9,000 level against the dollar in
the coming weeks.

Across the East Asian region, most dealers believed local
currencies would maintain their soft tone over the coming week.

"There is a lack of genuine interest in regional markets," the
head of foreign exchange at one U.S. bank in Singapore was quoted
by Dow Jones Newswires as saying.

In Southeast Asia, the Thai baht and the Philippine peso were
sold down heavily at the open in response to the real's slide on
Wednesday to levels 30 percent below its value immediately
preceding devaluation a week earlier.

Only the Singapore dollar held its own, although it, too, saw
selling interest during Asian trading hours.

In North Asia both the South Korean won and the new Taiwan
dollar closed down sharply as traders speculated that, with the
Argentina's currency board looking increasingly vulnerable,
China's may be the next fixed exchange rate regime to come under
pressure.

Most analysts, however, dismissed as baseless any fears that
the flotation of the real could force China into devaluing the
yuan.

"What is happening in Brazil is totally irrelevant to China,"
asserted Dong Tao, senior Asian regional economist at Credit
Suisse First Boston in Hong Kong.

"China's fundamentals look completely different from Brazil's.
Except for the yuan's peg to the dollar, it is difficult to see
any similarities at all between the two currencies," he said.

Tao, along with other regional economists, points out that the
yuan, unlike the real, is not convertible on the capital account,
a restriction which allows the Chinese government easily to
control capital flight.

At the same time, China continues to run a trade surplus,
while Beijing's fiscal balance, said Tao, "does not even come
close to the devastating deficit run up by the Brazilian
government.

Nevertheless, dealers remain nervous, noting a significant
amount of hedge fund interest to sell the Hong Kong dollar in the
forward market in reaction to the Brazilian crisis.

Late Friday the 12-month U.S. dollar/Hong Kong dollar forward
was quoted at 2,200 points over the spot rate, up from 2,050 late
the previous day.

Brazil-inspired fears were also blamed for an early sell-off
in the baht, although traders admitted that a barrage of dismal
results from the Thai banking sector hardly served to improve
sentiment.

Late Friday in Asia the U.S. dollar was quoted against the
baht at 36.7500 baht, up from 36.4350 the day before. But with
U.S. dollar offers seen above the 36.7500 baht mark, some traders
questioned the U.S. currency's potential to make further gains in
the near term.

The Philippine peso, too, dropped steeply on Friday, as the
regional sell-off spurred market participants to cover short
positions in the U.S. dollar.

At the end of trading on the Philippine Dealing System, the
U.S. currency was quoted at 38.680 pesos, up from 38.255 at
Thursday's close.