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.