SE Asian currencies languish at week levels

SE Asian currencies languish at week levels

SINGAPORE (AFP): The Indonesian rupiah, Thai baht and the South Korean won plunged to record lows yesterday and other Southeast Asian currencies languished at weak levels with no end in sight to exchange-rate turmoil.

Dealers said rising political and economic concerns surrounding Thailand and the anticipated dismantling of capital controls on the baht spilled over into other regional units and spread even to the South Korean won.

"It was another ugly day for regional currencies, another very volatile day," said David Cohen, senior economist at research house Standard and Poor's MMS.

Mohammed Ali Ayub, head of regional foreign-exchange trading at Union Bank of Switzerland, added: "The tone is weak on regional currencies. The dollar is bullish across the board."

Bank Indonesia raised short-term money market interest rates to halt the rupiah's slide and succeeded in lifting the currency from a record low of 3, 020 to around 2,900 in late Asian trading, dealers said.

"The rate hike signaled some new determination on their part to resist the pressure on the rupiah," said Cohen, adding that the higher rates would exact a toll on the Jakarta stock market.

The baht dived to an offshore low of 32.94 to the greenback, a record for the Thai currency which was floated on July 2, triggering the regional currency turmoil that has yet to abate, dealers said.

The baht, which had been quoted at 32.40 to the dollar in late Asian trade here Monday, just stopped short of hitting the 33 level. It ended at 32.80. In domestic trade, it slumped to a record low Tuesday of 32.45-70.

Jacqueline Ong, economist at British financial house I.D.E.A., said offshore sentiment on the baht was "very weak" due to political worries and expectations of a removal of Thai capital controls.

Political concern stemmed from a cabinet reshuffle last week by Thai Prime Minister Chaowalit Yongchaiyudh which sparked dissent in his own party and from opposition within his coalition to a draft constitution.

"Basically the baht sentiment offshore is very weak," Ong said. "There is a lot of uncertainty in the political arena. That is weighing down sentiment a lot even on the onshore market."

The Bank of Thailand in May created a two-tier foreign exchange market by imposing capital controls that restricted access to baht to offshore players in a bid to curb speculative attacks.

Currency traders expect the controls to be removed any time as part of a 16-billion-dollar economic rescue package brokered by the International Monetary Fund.

If the controls are abolished, corporate players would rush out to buy dollars to hedge against their dollar-denominated loans, weakening the baht and other regional units further, analysts said.

The market was also worried that any government changes could adversely affect the implementation of the IMF-brokered rescue for the beleaguered Thai economy, which sank into crisis on bad debt fears saddling Thai banks.

Other regional currencies were weak, with the Malaysian ringgit hitting an intra-day low of 2.8040 to the U.S. dollar and the Singapore dollar 1.5186 before ending at 2.7990 and 1.5150.

They had closed the previous day at 2.7900 and 1.5165 respectively against the U.S. dollar. Traders said the Philippine peso ended at 30.10 from the previous day's record low close of 30.14.

The Hong Kong dollar, which was pressured Friday against the US dollar on fears that it would be the next target of speculators, strengthened to 7.7385 to the greenback from 7.7412 at the previous day's close.

"The HK dollar spot rate is clearly maintained. But you still see pressure in the forwards and higher interest rates," said a dealer with a U.S. finance house.

Dealers said the Southeast Asian currency weakness seemed to have spilled over into the Korean won, which fell to a seven-year low of 901.00 won from 898.70 the previous day amid domestic corporate worries.

Daragh Maher, economist at ING-Barings, said there was no indication when investment sentiment on Southeast Asian currencies would improve.

"It doesn't seem like fundamentals are driving this, rather it is speculation and sentiment downturn. The sentiment is not going to flip back immediately," Maher said.