SE Asian currencies likely to remain bearish this week
SE Asian currencies likely to remain bearish this week
SINGAPORE (AFP): Southeast Asian currencies could face a new round of attacks this week following the scare over the Hong Kong dollar and a Thai cabinet shakeup which is unlikely to impress the market, analysts said.
Uncertainty over Indonesia's talks with the International Monetary Fund and Singapore's declaration that market forces would set the value of its dollar could also affect sentiment when trading resumes Monday.
"We're waiting for more volatility ahead especially with the North Asian currencies now under pressure," said a regional economist with a financial research house in Singapore. "It's probably just the beginning."
The Taiwan dollar and the South Korean won succumbed to pressure while the Hong Kong dollar was defended at a massive cost last week as speculators who have hammered Southeast Asian currencies since July trained their guns northward.
The attacks eased Friday, but dealers and economists believe it was just a pause before the market again tests the Hong Kong dollar, the last major Asian currency still pegged to the U.S. dollar.
The territory's crisis had a knock-on effect on Southeast Asian currencies, which recovered some ground but are still hovering within striking distance of recent record-setting lows.
"I think the tendency is for people to be long on the U.S. dollar again. Nobody is really convinced that it's over," said Daniel Lian, head of Asian markets research for the Australia and New Zealand Banking Group Ltd. (ANZ).
Thailand underwent a cabinet reshuffle over the weekend as embattled Prime Minister Chavalit Yongchaiyudh, ignoring public pressure to resign, put together a new team after intense bargaining in the fractious coalition.
Kosit Panpiemras, executive director of Bangkok Bank, the country's largest bank, was named finance minister, replacing Thanong Bidaya, who quit after the premier rescinded a cabinet decision to raise oil taxes.
Som Jatusipitak, president of the smaller Siam City Bank, was named commerce minister.
"The whole cabinet lineup is like old wine in a new bottle, and it doesn't seem that they can inject a lot of new ideas to tackle the political and economic crisis," ANZ's Lian said.
Another Singapore-based regional economist described Thailand's new economic team as "second-tier choices."
"I expect spurts of weakness to emerge on the regional currencies because we may see more speculation in Hong Kong itself or the other places like Thailand if there's more bad news," the economist added.
The Singapore dollar closed Asian trading Friday at 1.5810 to the greenback, the Thai baht at 38.85, the Malaysian ringgit at 3.3820, the Indonesian rupiah at 3,590, and the Philippine peso at 35.10 to the dollar.
The ringgit and baht touched record lows last week. The Singapore dollar, so far the least scarred by the currency crisis, fell to its lowest level since early 1994 when it briefly slumped at 1.5974 to the dollar before interest rates surged and stopped its descent.
Senior Minister Lee Kuan Yew, addressing top U.S. businessmen at a forum in Boston last week, confirmed market belief that Singapore was deliberately allowing its currency to slide despite having massive reserves to defend it.
Economists say such "competitive devaluation" is necessary because Singapore may lose out to neighbors like Malaysia if the ringgit depreciates much faster, making its electronics and other exports cheaper to the U.S. and other key markets.
Singapore Finance Minister Richard Hu said market forces would set the Singapore dollar's value, and the Monetary Authority of Singapore would only step in to prevent "violent fluctuations."
"In the weeks ahead, the greenback has more upside potential," said Tan Kee Wee, a curency specialist with the United Overseas Bank of Singapore.