SE Asian currencies slip in wake of sinking yen
SE Asian currencies slip in wake of sinking yen
SINGAPORE (Dow Jones): Southeast Asian currencies mostly slipped against the U.S. dollar Monday.
Responding to an early slide in the yen, which saw the U.S. currency push upward to a high of 121.75 yen in Asia, the Thai baht and the Singapore dollar both fell back. The Indonesian rupiah also ended lower.
The Philippine peso, however, rose strongly, lifted by an inflow of foreign funds into the domestic market as a further fall in Philippine treasury-bill yields helped lift local debt and equity markets.
In North Asia, both the Korean and the Taiwanese markets were closed for a holiday.
The drop in the baht at the start of trading was primarily impelled by the yen's fall, traders said. But it was compounded by the Bank of Thailand's announcement Friday that it was to lift restrictions forbidding onshore banks to transact short-dated swaps with participants offshore.
The removal of the ban, which was only imposed four weeks ago, triggered a flurry of outright dollar-buying in the forward market, causing an immediate surge in swap rates in the offshore market as dealers loaded up on baht funding in hectic trading.
"The market's reaction was extremely predictable. People thought there was the potential to engineer a liquidity squeeze, but the effect proved pretty short-lived," a swap trader at a U.S. bank in Singapore said.
After their initial run-up, the short-term baht yields implied by offshore swap offer rates drifted off earlier highs, but, overall, the offshore baht yield curve remained considerably flatter than last week. By the end of Asian dealing, short-end yields were at 6.6 percent, up from around 4.6 percent Thursday.
The U.S. currency also ended Asian trading a fraction higher against the rupiah, finishing Singapore dealing at Rp 8,685, up from Rp 8,587 on Thursday.
Despite the falls in the baht, the Singapore dollar and the rupiah, the Philippine peso (PHP) rose strongly on Monday, supported by a healthy inflow of U.S. dollars into local asset markets.
Foreign investors, said analysts, were buying into the peso to take advantage of the beneficial effects on debt and equity prices of falling interest rates.
At Monday's auction, the average yield of the benchmark 91-day treasury bill fell to 11.487 percent - its lowest level since June 30 1997, one week before the devaluation of the baht touched off the regional currency crisis.
With Philippine inflation expected to fall to 9.5 percent over the year to the end of March, from 9.9 percent in February and 11.7 percent in January, few analysts see any impediment to domestic interest rates falling further.
"There is nothing in the Philippines' macroeconomic situation to say otherwise. On that basis the domestic bond market will continue to rally," said Daniel Lian, Singapore-based head of Asian markets research at ANZ Investment Bank.
Lian was not sure that the fall in interest rates onshore would necessarily be reflected by a parallel fall in offshore non-deliverable forward rates for the peso, however. The market's preoccupation with the yen's potential downside would continue to ensure the peso carries a hefty risk premium, he warned.
Nevertheless, the U.S. dollar gave up ground on the Philippine Dealing System on Monday, dropping to close at 38.540 pesos, down from 38.792 pesos at the close on Wednesday, the previous trading day.