SE Asian currencies fall as pressure on Hong Kong mounts
SE Asian currencies fall as pressure on Hong Kong mounts
SINGAPORE (Dow Jones): Heightened speculative pressure on the Hong Kong dollar spread a bearish ripple through Southeast Asian foreign exchange markets yesterday, as traders sold down regional currencies in panicky dealing.
Outright buying of U.S. dollars against the Hong Kong dollar in the forward market, widely attributed to U.S.-based hedge funds and investment banks, pushed the Hong Kong dollar interest rates implied by forward premiums sharply higher for the second day in a row.
In turn traders sold down the Singapore dollar, the ringgit and the baht on the expectation that should the Hong Kong dollar's rigid link to the U.S. dollar be sundered, the shock wave from the resulting devaluation of the Hong Kong dollar will trigger currency depreciation throughout Asia.
Despite the sell-off, few traders believed a devaluation is imminent, admitting that they were just playing on market sentiment.
The Hong Kong dollar is definitely overvalued and in such a trade-based economy domestic deflation will not be enough to adjust for the external overvaluation of the currency. I don't see why people should brush off this talk as just rumor," said Chia Woon Khien, treasury economist at Skandinaviska Enskilda Banken in Singapore.
I think the link will probably stay in place for the time being, but because it is a rigid mechanism, when the link does go, it won't be gentle," added Chia.
Showing no signs of the stress it was under, the Hong Kong dollar remained steady in the spot market, with the U.S. dollar ending Asian hours at HK$7.7498, a fraction down from HK$7.7499 the day before.
In the forward market, however, the interest rates implied by U.S. dollar/Hong Kong dollar forward premiums rose sharply. At the end of the Asian trading day, the one month forward was trading at an implied interest rate of 13.40 percent, up from 11.08 percent the day before.
The extent of the likely contagion effect on Southeast Asian currencies of any break in the link depends on whether regional markets can first achieve a degree of stability.
By the close of Singapore's interbank market, the U.S. dollar had risen to trade at S$1.7306, up from S$1.7228 late the previous day. The U.S. dollar later rose even higher in subsequent European trading to reach S$1.7448.
"The (U.S.) dollar is going higher. It will hit S$1.7500, maybe not this week, but definitely next week," said one trader at a U.S. bank in Singapore.
The U.S. dollar was also pushed higher against the Malaysian currency, ending Asian hours at 4.1725 ringgit, up from 4.1340 ringit late Wednesday after offers which over the preceding days had capped the U.S. dollar around 4.1600 ringgit were taken out.
Against the baht the U.S. dollar rose to 41.1950 baht, lifted from 40.8050 baht late Wednesday by the tide of negative sentiment towards the region.
Although other Asian regional currencies, including the Philippine peso, the won and the new Taiwan dollar all succumbed to downward pressure, the rupiah escaped the trend, pushed higher by buying from state-owned banks and talk of possible dollar sales by Bank Indonesia.
Late in Asian trading the U.S. dollar was quoted at 12,700 rupiah, down from 12,800 rupiah the day before.
Meanwhile, in trading on the Philippine Dealing System, the U.S. dollar closed at 42.700 pesos, up sharply from PHP42.175 at the previous close.
Against the won, the U.S. dollar ended at 1,334 won, up from 1,263 won a day earlier. Against the Taiwanese currency, the U.S. dollar closed at NT$34.505, compared with NT$34.433 at Wednesday's close after the central bank held back from the market.
The dollar was higher against the yen in Tokyo trade thanks to the previous day's rebound on Wall Street following steep falls in U.S. stocks earlier this week, dealers said.
In a late trading, the dollar was quoted at 144.66-68 yen, up from 144.24 yen in early trading here and 143.91 yen in New York late Wednesday. It rose to as high as 145.05 yen briefly.