SE Asian monies come under selling pressure

SE Asian monies come under selling pressure

SINGAPORE (Dow Jones): The U.S. dollar's break below Y120 in New York dealing failed to lend any support to Southeast Asia's currencies, most of which saw more selling pressure during Asian trading hours on Thursday.

Traders and analysts cited a number of forces driving the rupiah's slide, as the U.S. dollar extended its run above Rp 9,000 for a second day, briefly trading to an intraday high of Rp 9,550.

"The main concern is that the riots in Ambon will spread to other islands," said one regional currency trader at a U.S. bank in Singapore.

Other market participants, however, dismissed the escalating unrest in Ambon as a factor in the rupiah's fall. They argued that the sell-off is in anticipation of mass bank closures, which the government is expected to announce on Saturday.

"What action the government takes on Indonesia's banks is key for the economy and for the currency," said Kate O'Donoghue, an economist at Barclays Capital in Singapore.

"Although it will be some time before any measures are implemented, and even longer before we begin to see results, some people are prepared to trade on their expectations," she said.

Much of the buying pressure was attributed to Indonesian banks in Jakarta, which were said by traders to be closing out short dollar/long rupiah positions and trimming credit exposures ahead of Saturday's announcement.

At the Asian trading close, the U.S. currency eased off its earlier high to be quoted at Rp 8,975, down from Rp 9,075 on Wednesday, with most dealers predicting further U.S. dollar appreciation against the rupiah.

According to David Fernandez, regional economist at J.P. Morgan in Singapore, market participants may be overplaying their hand by bidding up the dollar against the rupiah at the present moment.

"The market has got ahead of itself if it thinks there is going to be a lot of progress on bank restructuring," he said.

Although Fernandez agrees with analysts who argue that banking reform will dictate an easier monetary policy and lower interest rates, he warns that does not necessarily mean the rupiah should weaken over the short term.

"That would assume the authorities are going to be aggressive in their moves on the banking sector. Once the restructuring process gets going at full steam, we will see rates come down, but I don't know if that will be in the near future," he said.

Towards the end of trading in Asia, the U.S. currency had been pushed up to 37.57 baht, up from 37.49 baht late the previous day.

The Singapore dollar also saw selling interest on Thursday, with some dealers treating the currency as a proxy for the less liquid rupiah.

Late in Asian trading the U.S. currency was quoted at S$1.7362, up from S$1.7317 the day before.

Against the peso, the U.S. dollar ended domestic trading at 38.905 pesos, down from 39.020 pesos the previous day.

Against the won, the U.S. currency closed at 1,230.50 won, compared with 1,233 won the day before.

Against the Taiwanese currency, the U.S. dollar eased to NT$33.114, down from NT$33.120 at Wednesday's close.