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.