SE Asian currencies under strong pressure
SE Asian currencies under strong pressure
SINGAPORE (Dow Jones): Southeast Asian currencies took it on the chin yesterday after international credit rating agency Moody's Investors Service announced that it had put Japan's triple-A sovereign rating on review for possible downgrade.
The U.S. dollar surged more than one yen to a high of Y142.10 in late morning trading after the Moody's news broke in the market.
Moody's said the review was prompted by deep, structural problems in Japan's economy and an apparent lack of consensus among policy makers as to how to manage structural reform and the economy.
Cliff Tan, foreign exchange rates strategist with Warburg Dillon Read in Singapore, said Japanese banks do not rely heavily on foreign funding, so an actual downgrade would not hit their bottom line directly.
"But this will hurt sentiment both onshore and offshore about the integrity of the banking system," Tan said. "Moody's placed a shot across Japan's bow today."
That shot scored a direct hit on Southeast Asian currencies. In the span of about three hours, the U.S. dollar surged about S$0.01 against the Singapore dollar to an intraday high of S$1.7175.
Shortly after the Moody's announcement, Fitch IBCA said that it had downgraded Singapore's top four banks due to the city- state's deteriorating economy, adding fuel to the dollar-buying fire.
Dealers say that Singapore dollar bears got ahead of themselves, however.
In a late trading, the U.S. dollar was quoted at S$1.7107, down from S$1.7096 late Wednesday in Asia.
Other currencies were not so resilient.
Against the Thai baht, the U.S. dollar was quoted at 41.2750 baht (THB), up from 41.1050 baht late Wednesday.
The dollar is relatively bid against the baht because interest rates are low compared to where they have been," said the U.S. bank trader.
However, a senior dealer at a Japanese bank in Singapore said that there wasn't a lot of trading interest in the baht. The ringgit was thinly traded, as well, he said.
The U.S. bank trader noted that there was not a strong market response to the presentation of the National Economic Action Council's plan for Malaysia's economic recovery, nor to Finance Minister Anwar Ibrahim's announcement that Malaysia would maintain its tight monetary policy.
In a late trading,the U.S. dollar was quoted at 4.1600 ringgit, unchanged from 4.1600 ringgit late Wednesday in Asian dealing hours.
If trading interest was thin in the baht and ringgit, "There is none at all in the Indonesian rupiah," said the Japanese bank trader.
"People just don't want to pay the spread (in the rupiah)," said the U.S. bank trader.
The U.S. dollar was quoted at 13,825 rupiah, little changed from 13,744 rupiah late Wednesday.
On the Philippine Dealing System, the peso fell against the dollar. The U.S. dollar finished the day at 42.080 pesos, up from 42.005 pesos at close of business on Wednesday.
Meanwhile, in Northeast Asia, the South Korean won closed sharply higher on the back of ample dollars held by local companies that have benefited from growing foreign investments in Korea, according to dealers in Seoul.
The dollar closed at 1,273.5 won (KRW), down from KRW1,290 at Wednesday's close.
The New Taiwan dollar ended lower against the U.S. dollar on the back of Moody's review of Japan's sovereign credit rating. Continued strong importer demand for the greenback also weighed on the local unit, said foreign exchange dealers in Taipei.
The U.S. dollar finished the day at NT$34.388, up from NT$34.356 Wednesday, despite the US$60 million the central bank sold throughout the trading day to support the local currency, according to traders in Taipei.