SE Asian currencies remain flat due to spiraling yen
SE Asian currencies remain flat due to spiraling yen
SINGAPORE (Dow Jones): The breathtaking plunge of the Japanese yen to new eight-year lows dragged Southeast Asian currencies into a vicious downward spiral during Asian trading yesterday.
As stock markets throughout the region plummeted, the U.S. currency spurted up through resistance at 147.00 yen to hit a peak during Asian hours of 147.61 yen, its highest level since Aug. 20, 1990. In response, market participants bid up the U.S. dollar against Asia's regional currencies, many of which were pushed to their lowest levels in weeks, or even months.
"All the regional currencies are moving in tandem with the yen," complained a senior treasury executive at a Singapore bank, as the Singapore dollar dropped to its lowest level against the U.S. dollar since Jan. 23, at the height of Southeast Asia's currency crisis.
The rapidity of the yen's fall spells only bad news for other Asian economies, said analysts, with some market observers arguing that nothing short of concerted intervention by the central banks of the Group of Seven leading industrial nations can avert another disastrous meltdown in the region's foreign exchange markets.
Although observers regard that scenario as overly pessimistic, few doubt that if the U.S. dollar does rise to 150 yen over the coming days - the next level targeted by many foreign exchange traders and strategists - there will be more downward pressure on regional currencies.
"There will be more weakness. But if the yen goes to 150 yen (to the U.S. dollar) it won't necessarily cause another downward spiral in Southeast Asian currencies," said Raymond Lim, chief regional economist at ABN Amro Bank in Singapore, arguing that regional currencies are unlikely to fall below the lows seen in January.
Despite the gloomy predictions of analysts, the falls in Southeast Asian currencies Tuesday could have been far more severe than they actually were, said traders.
"There is no very aggressive dollar buying against the regionals. In fact, the dollar is looking offered against the Singapore dollar and the baht," said the head of regional currency trading at a U.S. bank in Singapore, as the U.S. currency hit its high against the yen.
Market players who for weeks or even months had been sitting on long U.S. dollar positions against regional currencies took advantage of the U.S. currency's surge higher to liquidate their positions and book profits, he explained.
Late in Asian trading, the offers had driven the U.S. dollar off its intraday high against the Singapore dollar of S$1.7625 dollar to trade at S$1.7595. Late Monday the U.S. currency was at S$1.7518.
The U.S. dollar also retreated from intraday highs against the baht to end Asian trading hours at 42.1550 baht (THB), off its earlier high of THB42.42, but still well above THB41.7350 late the previous day.
Although the dollar sales took some of the steam out of the U.S. currency's rise against the Singapore dollar and the baht, there was little relief for the embattled ringgit.
Throughout the day, traders at U.S. banks in Singapore reported that U.S. funds were selling the ringgit against the Singapore dollar in the cross market in regional currencies.
Fund managers sold the ringgit against the U.S. dollar and partially offset the trade with purchases of the Singapore dollar as a bet that the Malaysian currency will depreciate relative to the Singapore dollar in response to recent monetary easing by Bank Negara, said traders.
Late in Asian trading the U.S. dollar was quoted at 4.2544 ringgit, up from 4.2260 ringgit. Against the Singapore dollar, the ringgit slipped to S$0.4133, down from S$0.4164 toward the end of Asian trading on Monday.
In trading on the Philippine Dealing system, the second interest rate rise in two days proved sufficient to bolster the peso in the face of speculative selling pressure. At the close of trading, the U.S. dollar stood at 43.61 pesos, down from 44.18 pesos at Monday's close after the central bank announced a three percentage point hike in its overnight lending rate to follow Monday's two point rise.
In trading in North Asian markets, both the South Korean won and the New Taiwan dollar were pushed lower in response to the yen's fall.
Against the South Korean currency, the U.S. dollar closed at 1,339 won, higher than Monday's close at 1,338 won. Against the Taiwanese currency, the U.S. dollar rose to NT$34.810, compared with NT$34.781 at Monday's close.