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.