SE Asian currencies slip as traders back away
SE Asian currencies slip as traders back away
SINGAPORE (Dow Jones): Southeast Asian currencies mostly slipped against the U.S. dollar during Asian trading yesterday, trailing regional stock markets lower as fears of financial instability in Russia and Latin America depressed sentiment towards emerging markets throughout the world.
Liquidity in the region's foreign exchange markets remained thin, however, with the falls in Southeast Asian currencies attributed to U.S. dollar buying by just a handful of offshore banks, as many players stayed away from the market.
Traders in Singapore spent much of the morning dissecting the text of a weekend speech by Prime Minister Goh Chok Tong in an attempt to glean clues to the government's attitude towards the Singapore dollar exchange rate.
While Goh noted that the Singapore dollar's strength relative to other regional currencies had damaged export competitiveness, he stressed that the government does not regard depreciation as a solution.
"He didn't tell us anything we didn't know already," said one trader of Goh's speech, in which the prime minister warned of tough economic times ahead.
There was also little for traders to get their teeth into in the Singapore Monetary Authority's annual report, released yesterday afternoon.
Although monetary authority managing director Koh Yong Guan said that the de facto central bank is "quite comfortable with the exchange rate as they are today, and with the trends in the last few months," traders were unimpressed.
Many believe that the Monetary Authority of Singapore has been intervening in the spot foreign exchange and money markets for months to massage the local currency lower, in an effort to reverse the erosion in export competitiveness caused by the depreciation of other regional currencies.
Late on Monday the U.S. dollar was quoted at S$1.7677, up from S$1.7575 late in Asia on Friday. Of the action there was, much took place in the regional currency cross-markets, according to traders.
"People are selling the Singapore dollar against the other regionals," said the head of trading at one U.S. bank in the island republic, although he added: "The amounts are not significant".
Offshore players, he explained, are selling the Singapore dollar short against the U.S. dollar in the forward market. At the same time they are selling U.S. dollars against the ringgit and the baht in offsetting transactions, which leave them benefiting from the gaping interest rate differentials between the Singapore dollar and other regional currencies.
Cross-market buying failed to buoy either the baht or the ringgit, however, with both finishing Asian trading hours lower against the U.S. currency.
"Stock markets are down across the region, and the currencies are playing catch up, as negative sentiment spills over," said one regional currency trader at another U.S. bank.
Late in the Asian day, the U.S. dollar was quoted at 4.2225 ringgit, up from 4.2050 ringgit towards the end of Friday's trading session.
Against the Thai currency the U.S. dollar was quoted at 41.6950 baht, up from 41.4950 baht late on Friday.
Although traders said that offers from Thai exporters are likely to cap the U.S. dollar at levels around 42.00 baht to 42.20 baht, they say there is a danger that sentiment towards the baht may deteriorate unless the authorities pursue banking sector reform with greater vigor.
Elsewhere in the region the Philippine peso also slipped, with the U.S. dollar ending trading in Manila at 43.23 pesos, up from 42.68 pesos at Friday's close.
The rupiah bucked the regional trend however, rising against the U.S. dollar on inflows of extra assistance funds granted last month by donor nations.
Late in Asian trading, the U.S. dollar was quoted at 11,675 rupiah, down from 11,750 rupiah late on Friday.
In North Asian markets, regional currencies also ended down, with worsening sentiment towards the region reflected by a rise in Hong Kong dollar interest rates and an increase in the yuan interest rates implied by non-deliverable forward rates.
Against the Korean won, the U.S. dollar ended at 1,305.75 won, up from 1,300 won on Friday. Against the Taiwanese currency, the U.S. dollar closed at NT$34.812, up from NT$34.695 at Friday's close.