SE Asian monies struggle as market looks to yen, mark

SE Asian monies struggle as market looks to yen, mark

SINGAPORE (Dow Jones): Southeast Asian currencies languished against the U.S. dollar in quiet trading late Thursday as traders, fund managers and speculators focused their attention on the yen and German mark.

Regional currencies -- still reeling from weeks of poor economic and political news -- are no longer seeing the short, sharp shocked movements that had been common in intraday trading, dealers said. Instead, there is an unspoken consensus to rein in speculative and aggressive trading positions, they said.

"I don't expect much to happen this week, barring anything unforeseen. The market has to sort itself out, and there is nothing in the news to get too excited about," said a trader at a German bank in Singapore.

A U.S. trader, looking in vain for bids to match his Indonesian rupiah offer, complained the interbank market - along with the inherent speculative component - had dried up.

"Everyone is still too busy sorting out their ringgit positions," he said, alluding to the back-room brouhaha the Malaysian government created by imposing capital controls and effectively capping the ringgit at 3.80 ringgit to the U.S. dollar.

The move killed the offshore market for the ringgit and has also hamstrung the Singapore dollar market, traders said.

"Rangebound and nothing more," said a trader at a Singapore bank, adding that the greenback would likely trade in a narrow range this week between S$1.7300 and S$1.7420.

At 0945 GMT, the U.S. dollar was trading at S$1.7327, up from S$1.7257 in late Asian trading on Wednesday.

The Singapore dollar is acting as a proxy for the impending blow-up in Malaysia, where the ringgit's fixed rate does not reflect reality," said Mark Mcfarland, a regional economist at Santander Investment Securities Asia in Hong Kong.

He said the ringgit's value would be more realistic if Bank Negara pegged it at 4.5 ringgit or 5.5 ringgit to the U.S. dollar, given the way the government is forcing down interest rates and artificially injecting liquidity into the domestic market.

Also late Thursday in Asia, the U.S. dollar was trading at 11,600 rupiah, unchanged from late Asian trading Wednesday. The rupiah had been slipping gradually this week, traders and economists said, depressed by reports of renewed civil unrest.

The Singapore-based economist said the rupiah had probably traded up as far as it can in the short term, and predicted the currency would weaken to 14,000 to the U.S. dollar by the end of the year.

The U.S. dollar is also trading at 40.75 Thai baht, almost unchanged from 40.7750 in late trading Wednesday.

"Japanese corporations and banks are starting to unwind swap positions in anticipation of closing books year-end," said one trader. "They're repatriating profits to prop up the balance sheet back home."

Commentary on the fortunes of the baht in the coming months is mixed, as some economists believe structural problems in the dormant economy will inflate the fiscal deficit and weigh the baht down.

"We're predicting that the baht will move to 46 against the U.S. dollar by the end of the year, as the public sector burden of bailing out the banks grows," said Tim Condon, a regional economist at Morgan Stanley Dean Witter in Hong Kong.

A similar problem exists in South Korea, he said, "which has the added twist of a weakening trade surplus" and the prospect of higher loan repayments. Condon said the won should fall as low as 1,400 won against the U.S. dollar by year end. In late trading, the U.S. dollar was trading at 1,368 won, flat against levels seen at the close of the Seoul market Wednesday.

The greenback is trading at 43.800 pesos, up from 43.690 in late Asian trading Wednesday. Sentiment for the peso, which has been relatively strong since the beginning of the year, is beginning to turn negative, economists said.

"It will be difficult for an economy in a rapid slowdown to maintain a flat currency," said one regional economist, who is predicting the peso will drop to PHP48 against the U.S. dollar by the end of the year.

Morgan Stanley's Condon said the Philippine currency market had not seen much exchange rate risk priced into domestic interest rates. "That won't persist for too long," he said.

In Hong Kong, market watchers have been focusing on the Hong Kong Monetary Authority's efforts to keep overnight interest rates above 4 percent to discourage market players from selling Hong Kong dollars to take advantage of higher U.S. short-term interest rates.

The HKMA had mixed results Thursday as the overnight rate fell late Thursday to 2 percent from 4 percent. At the same time, the U.S. dollar was trading at HK$7.7495, unchanged from late Asian trading Wednesday.