SE Asian currencies climb in run-up to U.S. Fed meeting

SE Asian currencies climb in run-up to U.S. Fed meeting

SINGAPORE (Dow Jones): Southeast Asian currencies were stronger against the U.S. dollar in late trading Tuesday, as a hoped-for U.S. interest rate cut, news of a Japanese debt rating downgrade and domestic issues pushed the baht, Singapore dollar, peso and rupiah higher.

"The markets are anxiously awaiting what the Federal Reserve will do (tonight). While market expectations have been moving in the direction of no move, we still believe the Fed will go with another quarter point cut. If you think of the reasons why the Fed cut rates twice in 16 days this fall, most of them haven't gone away, and some have gotten worse," said Jeffrey Applegate, a U.S.-based strategist at Lehman Brothers.

"If the Fed doesn't go, domestic and global equity market reaction could well be fairly unpleasant, enough so that the Fed would have to go again before the Dec. 22 meeting. Why ruin Thanksgiving?"

At 09:00 GMT, the U.S. dollar was trading at 120.02 yen, well down from 122.30 in late trading Monday.

The U.S. rate cut scenario was further confused by news early Tuesday that Moody's Investor Service had downgraded Japan's sovereign debt ratings to AA1 from triple-A.

"The downgrading is not unexpected; it's highly justified and something we've been talking about for some time," said Kate O'Donoghue, a regional economist at Barclays Bank in Singapore, adding that the recently announced Y23 trillion economic stimulus package is inadequate.

She said the Japanese situation can only reflect badly on regional economies and currencies, in terms of exports and competitiveness.

At 09:00 GMT, the U.S. dollar was trading at S$1.6320, down from S$1.6459 late Monday. Traders said the U.S. dollar continues to be "heavy" against the republic's currency as the market goes through a "technical sell-off."

"The next few sessions could see the U.S. dollar move as low as S$1.60, although that depends on the dollar-yen; if there is no rally, then the market has a tendency to sell (U.S.) dollar- sing," said a trader at a Thai bank in Singapore.

The U.S. dollar is also edging lower against the rupiah, trading at 7,450 rupiah, well down from 7,700, albeit in a quiet market, due to a public holiday today in Indonesia.

"The U.S. dollar has a chance to fall to 7,000 by late this week if demonstrations are contained in Jakarta," said Danny Kang, a regional currency trader at Bank Brussels Lambert in Singapore.

"With the (People's Consultative Assembly) behind us, the political climate has stabilized. At the same time, state banks have been selling U.S. dollars, although the quantities are not too large."

"The rupiah has kept fairly quiet between 7,500 and 8,000, and with liquidity very thin, a spike up to higher levels may not occur simply because of this," said Thio Chin Loo, an economist with Banque Paribas in Singapore.

She - like many other traders and economists - remain surprised that the U.S. dollar is not stronger against the rupiah.

"The risk remains on the downside for the rupiah, and we would forego the relative high yields than risk a move back above 10,000."

Fong Cheng Hong, head of fixed income research at Nomura in Singapore, expects investor confidence to remain weak until Indonesia's political risk is resolved, and a new president is elected.

"From now until June, 1999, we expect political risk to intensify. Our growth forecast for 1998 and 1999 remain at -18 percent and -8 percent," she said. "We also expect the rupiah to weaken to 12,000 (against the U.S. dollar) by the first quarter of 1999."

The U.S. dollar is also trading at 36.3350 baht, down from 36.52 baht late Monday. Traders said continuing inflows, along with the expected U.S. interest rate cut, makes the U.S. dollar look heavy against the baht.

The U.S. dollar is also trading at 39.92 pesos, down from 40.175 Monday.