SE Asian currencies unmoved after rate cut comes up short

SE Asian currencies unmoved after rate cut comes up short

SINGAPORE (Agencies): Southeast Asian currencies were down against the U.S. dollar in late trade Wednesday, compared with levels seen at the same time Tuesday, as the much-awaited cut in U.S. interest rates failed to meet market expectations.

"We've seen a bit of a turnaround from the rally early in the week due to the smaller-than-expected rate cut," said one trader at a U.K. bank, referring to the U.S. Federal Reserve's 25-basis- point cut in the Federal Funds rate to 5.25 percent.

Pundits had been forecasting a cut as high as 100 basis points.

"There has been a sell-down, some buying back of the dollar, with market volumes relatively small compared to earlier in the week," the trader said.

Robert Rountree, Prudential-Bache Securities' managing director of Asian research, said the rate cut gives the Fed room to cut rates later in the year.

"It is also a signal to the market that (Fed chairman Alan) Greenspan is keeping his eye on external developments, but will not be panicked into doing something rash," he said.

Rountree expects regional currencies to continue on a downward trend against the U.S. dollar, although "not the destructive spiral that was seen in the third quarter last year."

Currencies will be under pressure because central banks continue to pump money into their respective economies to push interest rates down, he said, and because trade surpluses will continue to shrink as a year-long trend of import compression comes to an end.

At late Asian trading, the U.S. dollar was trading at 10,562 rupiah, almost unchanged from 10,613 in late trading Tuesday.

"The rupiah can't hold at the current levels. Net foreign reserves haven't increased significantly, despite the large infusion of cash from exports and the International Monetary Fund," said an economist with a Hong Kong-based securities house.

The forecast for the Thai baht is equally negative, according to economists, despite the currency's "flavor of the month" status these past few weeks.

"The baht is increasingly being used as a proxy for regional currencies and appears relatively stable, with flows going into the industrial sector, not the banking sector, which still requires considerable restructuring," said Song Seng Wun, a regional economist at GK Goh Research in Singapore. "But when this regional play wanes, the baht will once again come under pressure."

The U.S. dollar is trading at 39.45 baht, up from 39.025 Tuesday.

Other Asian currencies mostly languished against the U.S. dollar, with the yen falling to 136.04 against the dollar in Singapore from Tuesday's close of 133.85.

The Singapore dollar dipped to 1.6870 from Tuesday's close of 1.6760.

The South Korean fell to 1,387 against the greenback from 1,371 and the Philippine peso to 44.010 from 43.840.

The Taiwan dollar rose slightly to 34.413 against the greenback from 34. 482.

Thio Chin Loo, currency strategist with Banque Paribas, said despite disappointment over the extent of the cut the market still harboured hopes of a further rate reduction.

"The cut actually paves the way for further reductions down the line," Thio said, adding that the markets would assess conditions from now to the next U.S. Federal Reserve policy- making body meeting on Nov. 17.