SE Asian currencies' rally appears to run out of steam
SE Asian currencies' rally appears to run out of steam
SINGAPORE (Dow Jones): The rally which over recent sessions has propelled Southeast Asian currencies to fresh long term highs against the U.S. dollar appeared to run out of steam during Asian trading hours on Thursday.
The Philippine peso, the Indonesian rupiah and the Singapore dollar all slipped back against the U.S. currency, while in North Asia both the New Taiwan dollar and the South Korean won eased in response to the weaker yen.
Among Asian regional currencies only the Thai baht continued to strengthen further, notching up a new 12-month high against the U.S. dollar.
Nevertheless, many foreign exchange traders remain bullish on the regional currencies, predicting further gains. Market analysts are less optimistic, however, arguing that at current levels regional currencies are in danger of outstripping their economic fundamentals.
"There is no doubt that the market wants to tell a strong story on the regional currencies - that is the way sentiment is leaning right now. But it is our feeling that the currencies have overshot on the upside and that over the next six months we will see a weakening again," said Cliff Tan, foreign exchange and interest rate strategist at Warburg Dillon Read in Singapore.
Although the strength of the regional rally is indisputable, analysts attribute the gains to U.S. dollar weakness rather than to a genuine reversal in regional markets.
Despite the analysts' gloomy views, many traders believe the regional currencies will remain strong over the short term.
"This is not an isolated rally, these improvements are broad- based," insisted the head of foreign exchange at one U.S. bank in Singapore.
That strength is likely to push the baht higher still against the U.S. dollar, which many market participants predict will fall to 35.00 baht in the short term, as foreign investors buy baht to invest in cheap Thai assets.
Late in Asia on Thursday, the U.S. dollar was quoted at 36.40 baht, down from 36.52 late in Asia the previous day.
While the baht continued to push higher on Thursday, other Asian currencies faltered.
The peso, one of the region's best performers in recent sessions slipped back a touch as U.S. dollar inflows abated, spurring local market participants to take profits from the peso's rise.
At the close of trading on the Philippine Dealing System, the U.S. dollar was quoted at 39.77 peso, up from 39.40 at the previous day's close.
The Singapore dollar also eased a fraction, although remaining locked firmly into an extremely tight 25-point range for the duration of Asian trading hours.
As dealing in the Singapore interbank market drew to a close on Thursday, the U.S. dollar was quoted at S$1.6239, little different from S$1.6224 late on Wednesday.
The rupiah, too, ended lower, although erratic trading saw a wide range of prices quoted through the day.
Fears of heightened political tensions in the run-up to next week's special meeting of Indonesia's highest legislative body, the People's Consultative Assembly, to enact new electoral law and set the date for an election next year, triggered a flurry of U.S. dollar buying, which at one point pushed the U.S. currency above 9,000.
Late in the Asian day, the U.S. dollar was quoted at Rp 8,762, higher than 8,575 towards the close of interbank trading in Singapore the previous day.
In North Asian markets, both the New Taiwan dollar and the Korean won succumbed to the yen's weakness, dropping back against the U.S. dollar.
At the end of domestic trading in Taipei, the U.S. dollar was quoted at NT$32.566, up from NT$32.468 a day earlier.
In Seoul, the U.S. currency ended the day at 1,316 won, up from 1,310 the previous day.