SE Asian currencies fall but recover
SE Asian currencies fall but recover
SINGAPORE (Dow Jones): Southeast Asian currencies are weaker across the board late in Asian trading yesterday compared with levels seen late Friday, but have recovered from lows against the U.S. dollar reached yesterday morning.
Regional currencies moved sharply lower early yesterday after the U.S. dollar surged against the Japanese yen, reportedly on strong U.S. dollar interest from U.S. investment banks and a large U.S. insurance company.
The dollar broke above the psychologically important 140 yen level as the market opened in Tokyo, triggering stop-loss buying all the way up to 140.71, from 139.78 yen immediately before the big move.
The yen's retreat dragged regional currencies down in its wake. The U.S. dollar broke through Singapore dollar resistance at S$1.7000, and smashed through resistance in the Malaysian ringgit at 4.000 ringgit (MYR).
Monday afternoon, traders were looking to London for direction, according to Daniel Lian, head of Asian markets research for ANZ Investment Bank in Singapore.
"There was pretty choppy trading in the morning, but when London opened and didn't take the yen down further, regional currencies consolidated," he said.
Lian says that traders in the interbank market are watching the yen closely for cues on trading regional currencies.
"They are only willing to pressure the regionals if dollar/yen is on their side. Otherwise the cost of a short position is too much to maintain."
It is all up to the yen. If it continues to go, then so will Southeast Asian currencies. If the yen turns around, regional currencies will too," Lian said.
He said that large hedge funds had placed short positions against regional currencies several weeks ago, before the crisis in Indonesia forced President Soeharto from power and sent regional currency markets into a tailspin. Interbank traders, however, are not sitting on such old short positions.
Using the ringgit as an example, Lian said that forward premiums (which can be used as a measure of the price of shorting a currency) two months ago implied a depreciation of about 15 percent. Now, the six-month forward rate implies a depreciation of 25 percent-26 percent, making it much more expensive to place a new short position against the ringgit, Lian said.
In the afternoon, the U.S. dollar was quoted at 3.9975 ringgit, up from 3.9870 ringgit late Friday in Asia.
Fears
Nicholas Brooks, the regional economist for Southeast Asia for Banco Santander, said regional currencies are trading on market players' fears of how far the yen will drop, as well as their fears about where it will turn around.
Brooks said that dealers will be watching the meeting of the deputy finance ministers of the Group of Seven industrialized nations in Paris on Tuesday.
"People sense that not much is going to be done at the G-7 meeting, but the question is if they will make stronger comments than they had intended because of the scale of the yen's recent depreciation," he said.
The Australian dollar plunged towards an all-time low yesterday after U.S. and other hedge funds renewed their attack, forcing the currency through the crucial 60 U.S. cent level.
Dealers and economists said the funds were using the Australian currency as a substitute for attacking Asian currencies that were too illiquid to sell.
They said the U.S. dollar's rise past 140 yen yesterday triggered the latest wave in the assault, which has pushed the Australian dollar down nine percent in the past month.
The Australian dollar stood at U.S.$0.5970/80 at 2.45 p.m. (0445 GMT), down from its U.S.$0.6080 open in New Zealand and well below U.S.$0.6550 on May 1.
It was also below its previous 12-year low of U.S.$0.5985 reached in late Friday trade in New York.
The Australian dollar touched U.S.$0.5959 in late July 1986 after then-Prime Minister Paul Keating's predicted Australia could become a "banana republic" because of a blowout in its current account deficit.