SE Asian monies move higher on sentiment swing
SE Asian monies move higher on sentiment swing
SINGAPORE (Dow Jones): Southeast Asian currencies - benefiting from a tangible sea change in global sentiment toward the region - are stronger than they were a week ago, with Thursday's impromptu 25-basis-point cuts in two key U.S. interest rates further fueling gains against the U.S. dollar.
"There have now been rapid rate cuts by the U.S. Federal Reserve and continental Europe rates will likely follow," said Daniel Lian, head of Asian markets research at ANZ Investment Bank in Singapore.
Regional currencies are expected to strengthen and stabilize as the dollar continues to fall - at least in the short term, economists and traders said.
"If new money is injected, as is expected, into the International Monetary Fund (IMF), and the IMF uses those funds to address Brazil's problems, there is a good chance that Latin American economies will avert devaluations and credit-crunch problems," one economist at a U.S. bank said. "And if this last major emerging market block doesn't fall, then global liquidity will be very generous to Asian markets."
This strengthening, newfound sentiment for all-things-Asian has also grown out of favorable reports concerning Japan's efforts to reflate its economy, recapitalize its banking system and push money into the region through multi-trillion yen packages.
"Sentiment has swung dramatically as Japan's yen packages are seen as a potential source of growth for the domestic economy as well as for regional trade and credit," said Jonathan Hazell, regional economist at Barclays Capital in Singapore.
One of the better indications that the market believes U.S. and regional interest rates will fall and currencies strengthen, as regional economies find solid footing, can be found in the currency swaps and forwards markets, economists said.
Swap rate premiums have fallen across the region as have implied yields, traders said, as investors are pricing in aggressive U.S. and Asian interest-rate cuts to accompany stronger and less volatile regional currencies.
"The Federal Reserve might eventually trim interest rates to 3 percent - another 200 basis points downward," said Lian at ANZ.
The yen's knock-on effect for other Asian currencies was immediately apparent.
At 1045 GMT (6:45 a.m. EDT), the U.S. dollar was trading at S$1.6114, down from $1.6123 late Thursday, but well below S$1.6491 last Friday.
Traders said the Monetary Authority of Singapore attempted to bid the U.S. dollar up earlier in the session, pushing it as high as S$1.6245, but that the arrival of London traders pushed it down, along with some short-covering prior to a long holiday weekend in Singapore. Banks and markets in Singapore will be closed Monday for a religious holiday.
"The downside is probably limited to around $1.6050 or so," said a trader at a Japanese bank.
The regional currency of the moment is no doubt the Indonesian rupiah, as anticipation mounts that Bank Indonesia will dramatically cut interest rates in response to the U.S. rate cuts, as well as capital inflows and a strengthening currency.
The U.S. dollar was trading at 8,000 in late trading, well down from 8,700 Thursday and 9,075 last Friday.
"Interest rates will ease substantially," said Lian, adding that the Indonesia's inflation rate is now benign and the currency is stable.
He expects that the one-month and three-month Sertifikat Bank Indonesia notes will soon be offered at 45 percent, 15 percentage points below current levels. That should spell the end of the extremely high offshore swap rates, said Thio. "Rates of 60 percent to 70 percent can't be sustained at this level."
"Not many people are shorting the rupiah these days," said one trader at a U.S. bank, adding that he expects the dollar to fall to 7,000 in coming sessions.
The dollar is also trading at 37.90 baht, flat against levels seen Thursday, but well below 38.585 baht last Friday. More importantly, a sagging dollar has boosted the baht to its highest level in 11-months as foreign capital inflows have propped up domestic assets.
The dollar is also trading at 42.890 peso (PHP), down from 43.20 peso late Thursday and 43.25 peso last Friday.