SE Asian currencies tread water as dollar sinks

SE Asian currencies tread water as dollar sinks

SINGAPORE (Reuter): Southeast Asian currencies stayed afloat yesterday as the U.S. dollar fell sharply against the yen and regional stock markets clambered further out of the depths.

The dollar toppled below the key 120 yen level and hit a low of 118.40 yen on growing concerns that Japan may come under fire at a Group of Seven meeting later this month due to its weak economy and rising trade surplus.

But dealers and analysts said regional currency markets could be in for more volatility and were unlikely to revisit the levels seen before they were beaten down by a crisis of investor confidence.

"The recovery, even if it comes about, is going to be gradual and muted and what we've seen is probably the best we can get for now," said Chia Woon Khien, head of Asian research at Skandinaviska Enskilda Banken in Singapore.

She said international fund managers were wary of going back heavily into Asian stock markets, partly due to fears of further policy changes.

"I don't think people should be hopeful of a turnaround to pre-crisis levels for some of the Asian currencies because there was already a huge over-appreciation for some of them and that needs to be adjusted," Chia added.

Dealers said speculative players appeared to be booking profits after pushing the dollar to record highs against Southeast Asian currencies in recent weeks.

In Indonesia, the rupiah held up despite a central bank cut in interest rates for bilateral central bank certificates (SBIs) by between one and two percentage points.

It was near its day highs at 2,880/85 at 10.00 GMT after slipping to a low of 2,915 against an opening of 2,890/2,900.

Dealers said the rate cuts were widely anticipated and had little impact. "People are already trading below SBI rates. I think only a more significant cut could move the market further," a Singapore dealer said.

The Malaysian ringgit extended its rise in afternoon trade, reaching a high of 2.8864 to the dollar. "Many feel that the worst is over for the ringgit. Sentiment has improved and I see no reason why dollar/ringgit should go back to the 3.00 level," a European bank dealer in Singapore said.

Further gains in Kuala Lumpur stocks after the government's decision to lift a ban on short-selling of blue chip counters and delay major infrastructure projects also supported the ringgit, dealers said.

The Thai baht rose as exporters began to unwind long dollar positions after the central bank cut their maximum dollar-holding period on Monday to 120 days from 180 days.

The government also cut both commercial bank mandatory reserve requirements and imported short-term foreign funds reserves to six percent from seven percent in an effort to ease a domestic liquidity crunch.

The baht was at 35.40/50 to the dollar onshore against 36.20/36.40 late on Monday. Offshore baht firmed to 33.45/65 against 34.00/50.

The Singapore dollar was firm at around 1.5010/40 to the U.S. dollar, but dealers said further gains were blocked by fears the central bank might sell U.S. dollars.

Rumors the de facto central bank was looking to sell dollars near the 1.50 level, possibly to prevent the Singapore dollar from strengthening too sharply against its neighbors, capped the domestic currency.

The Philippine peso rose as banks slashed long dollar positions to meet a central bank requirement limiting their dollar holdings to five percent of their capital or $10 million, whichever is lower.

The peso ended at 31.30 to the dollar after hitting an early high of 30.90 against Monday's close at 31.60.

Central bank governor Gabriel Singson said the bank had bought about $19 million from commercial banks. an extension of his term also lifted spirits.