SE Asian monies down in lackluster trading

SE Asian monies down in lackluster trading

SINGAPORE (Dow Jones): Southeast Asian currencies were slightly weaker Tuesday in lackluster trading, as banks continued to deal with the labor-intensive problem of squaring outstanding Malaysian ringgit positions.

"There is no interbank liquidity at the moment, and the commercial side is moving in bits and pieces," said a trader at a U.S. bank.

The market is still digesting a number of disruptions, traders said, including Malaysia's decision last week to implement capital and currency controls, fixing the ringgit at 3.80 ringgit to the U.S. dollar; the Hong Kong Monetary Authority's actions this week to shore up the Hong Kong dollar by guaranteeing all banks exchange the currency at HK$7.750 to the U.S. dollar; and the general drubbing investors took in Russia when the ruble devalued.

"I think these markets have done the rest of us a favor. Their actions have forced these hedge funds and speculators to retreat and lick wounds," said one senior dealer at a Thai bank.

Asia has been pushed out of the limelight as other economies in Eastern Europe and Latin America take center stage, traders and economists said.

What seems to be the case now is that the regional currencies have been left behind by the movement of the dollar/yen," said one regional economist at a U.K bank.

"The limited reaction to what amounted to a (17-yen fall against the U.S. dollar) over the past week shows we're reaching a stage where the capital and international financial markets have left Asia almost completely. There is zero interest," he said.

Although the regional currencies are lagging behind the dollar/yen movement, traders don't expect a complete decoupling. "They won't be as tightly pegged, but the currencies are invariably tied to what the yen and the regional equity markets do," said one regional economist at a Singapore bank said.

The Singapore dollar and Thai baht - along with the historically volatile Australian and New Zealand dollars - will continue to act as regional proxies for the other illiquid regional currencies, said Daniel Lian, head of Asian markets research at ANZ Bank in Singapore.

The regional markets will become more active later in the week, once ringgit settlement issues are finalized and the U.S. market - sluggish after a long Labor Day weekend that featured high-level economic talks between the U.S. and Japanese officials.

The ringgit, once a staple in the cross market with the Singapore dollar, will hamper regional liquidity, and perhaps become actively traded in the non-deliverable forward market.

"Either that, or as with China, it will become a black market currency," said one economist at a Singapore bank. "There will be continued demand and limited supply."

While banks and traders punched calculators early in the week to net out spot ringgit positions and determine forward yield curves for derivative contracts, the moribund regional currency market moved sluggishly in line with the U.S. dollar's up-and- down movements versus the yen, traders said.

At late trading, the U.S. dollar had dropped to S$1.7290, down slightly from S$1.7300 in late trading Monday. Against the baht, the U.S. dollar was quoted at 40.6700 baht, up from 40.6250 baht Monday.

And by late Asian trading hours, the U.S. currency has climbed to 11,525 rupiah, up from 10,775 rupiah in late trading Monday.

Against the Korean won, the U.S. dollar closed at 1,357.00 won, up from 1,343.00 won Monday.

In the North Asian markets, the Hong Kong dollar was slightly weaker in late trading, as investors bought U.S. dollars on the back of Federal Reserve Chairman Alan Greenspan's hint that U.S. interest may be cut in the future. Higher premiums in the forward market also shed light on the market's confidence in the Hong Kong Monetary Authority, as the three-month premium climbed to 680 points from 600 points late Monday.

Elsewhere in North Asia, the New Taiwan dollar closed almost unchanged at NT$34.50 from NT$34.496 late Monday night, as commercial demand for U.S. dollars remained strong, traders said.