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.