SE Asian currencies take a battering
SE Asian currencies take a battering
SINGAPORE (Dow Jones): Battered by a barrage of bad news, Southeast Asian currencies succumbed to downward pressure yesterday, falling steeply against the U.S. dollar during Asian trading hours.
The rupiah, the ringgit, and the Singapore dollar all dropped heavily as factors as diverse as escalating riots in Indonesia and a lack of bidders at a Singapore land auction prompted bank dealers to sell down the region's currencies.
The baht alone escaped the sell-off, dropping only moderately in the spot market, although a rise in U.S. dollar/baht swap rates indicated that the Thai currency had not all together avoided coming under pressure.
The rupiah led the way, plunging by 7 percent against the U.S. currency during in Singapore, as a stream of reports from the North Sumatra capital city of Medan described police firing live rounds in an attempt to quell worsening anti-government riots.
Panic buying of U.S. dollars for rupiah, mostly by Indonesian market participants, according to traders, pushed the U.S. dollar easily up through successive resistance levels.
By late in Asian trading, the U.S. dollar was quoted at an intraday high of Rp 8,675, up steeply from Rp 8,070 at the same time the previous day.
In Jakarta, the rupiah was closed Rp 8,700 against the greenback while in London, the currency was opened at Rp 8,900.
Other regional currencies also fell, partly on contagion from the rupiah and partly on their own poor sentiment.
The ringgit headed down from early in the trading day as dealers reacted to reports that the Malaysian government is to set up a special body to aid companies in financial difficulties, a move traders said would merely institutionalize a culture of corporate bail-outs.
Contagion from any instability in Indonesia is likely to hit the ringgit and the Singapore dollar hard, said traders and analysts.
Although offshore market sentiment towards the rupiah is dismal, the latest fall in the Indonesian currency is being driven principally by Indonesian capital flight, rather than by speculation by offshore players, according to traders.
"Nobody offshore is shorting the rupiah, the interest rates would kill you,' said one trader at a European bank, explaining that offshore rupiah interest rates of around 50 percent are deterring players from borrowing the currency in order to sell it short.
Instead proprietary traders are selling the ringgit and the Singapore dollar, which carry much lower interest rates, as proxies for the Indonesian currency.
"Paradoxically, any blow-up in Indonesia will have more effect on the other regional currencies than it will on the rupiah itself," warned Chia at Enskilda.
Despite the falls in other Southeast Asian currencies on Wednesday and the credit downgrade of eight Thai financial institutions by the Standard & Poor's rating agency, the baht remained largely unaffected.
Late in Asia the U.S. dollar was quoted at 38.6050 baht, relatively little changed compared with its level late Tuesday of 38.4250 baht.