SE Asian monies quiet as ringgit issues dominate

SE Asian monies quiet as ringgit issues dominate

SINGAPORE (Dow Jones): Activity in Southeast Asia's foreign
exchange markets was muted on Friday, as participants grappled
with the problem of untangling their ringgit exposure before Bank
Negara's September 9 deadline for the settlement of outstanding
positions.

And regional currency markets are likely to remain quiet into
the coming week, said traders and analysts, as settlement
problems continue to monopolize attention, at least until the
middle of the week.

At the end of Asian hours on Friday, the Singapore dollar was
trading higher on the day, boosted by the overnight rise in the
Japanese yen. The baht and the Philippine peso, however, both
closed lower, pushed down by domestic influences.

In North Asia, the announcement by credit ratings agency
Moody's Investors Service that it was placing on review for
potential downgrade the foreign currency debt ratings of both
China and Hong Kong had relatively little impact on trading in
foreign exchange markets.

The settlement problems arising from Malaysia's decision last
Tuesday to impose stringent capital controls on ringgit flows are
set to dominate regional markets for the immediate future, to the
exclusion of almost all trading activity, say participants.

"It is impossible to decide what will happen next week," said
the head of regional spot foreign exchange at one U.S. bank in
Singapore.

"What happens on Monday, Tuesday and Wednesday will be
critical. Banks will be monitoring their cash flows very
carefully."

After Malaysia followed up the introduction of capital
controls with a decision on Wednesday to peg the ringgit to the
U.S. dollar at an exchange rate of 3.80, banks offshore in
Singapore agreed to settle outstanding exposures among themselves
in U.S. dollars without involving Bank Negara.

All outstanding positions, including ringgit deposits, are to
be netted out between the banks with the residual exposure
settled in U.S. dollars at an exchange rate of 4.00 ringgit to
the U.S. dollar. Forward contracts will be settled according to
the forward curve prevailing at the same time.

Not all market participants are satisfied with the deal,
however.

One senior executive at a European bank admitted to spending
the entire day on Friday explaining to irate ringgit depositors
why they should pay a 5 percent penalty by accepting an exchange
rate of 4.00 instead of the 3.80 available onshore.

"It was easy reaching an agreement between the interbank
players in the offshore market, but clearly, corporate clients
and the banks onshore are talking another language," lamented the
U.S. bank's foreign exchange chief.

Although trading is expected to be muted throughout the coming
week, the political turmoil in Malaysia following the sacking on
Wednesday of Malaysian Finance Minister and Deputy Prime Minister
Anwar Ibrahim is likely to weigh on the Singapore dollar, said
traders.

While further yen strength could boost the Singapore currency,
the U.S. dollar is likely to be firmly supported above S$1.70,
they said.

In the longer term, any damage inflicted on the Malaysian
economy by the adoption of capital controls will have
repercussions on Singapore's economy, potentially pushing the
U.S. dollar as high as S$1.85 to S$1.90, according to traders at
one U.S. bank.

Late in Asian trading on Friday, the U.S. dollar was quoted at
S$1.7515, down from S$1.7609 towards the end of Asian hours on
Thursday.

Meanwhile, both the baht and the Philippine peso eased back on
poor sentiment towards the region in general.

On the Philippine Dealing System, the U.S. currency ended the
session at 43.76 pesos, compared with 43.43 at the previous
close.

Dollar sales by offshore funds keen to cut their positions in
regional markets are likely to cap the U.S. dollar's rise against
the Thai currency at 41.00 baht, however, while domestic demand
for U.S. dollars should hold the U.S. currency above 40.00, say
traders.

Late in the Asian day, the U.S. dollar was quoted at 40.93
baht, up from 40.80 the day before.

Meanwhile, against the Indonesian currency, the U.S. dollar
ended at 10,858 rupiah, little changed from 10,788 late on
Thursday.

In North Asian markets, the Korean won slipped on heavy
domestic demand for U.S. dollars, while the new Taiwan dollar
ended higher on sales of the U.S. currency by the central bank.

Against the won, the U.S. dollar closed at 1,343 won, up from
1,341 won the day before.

Against the Taiwan currency, the U.S. dollar ended at
NT$34.686, down from NT$34.746.