South Korean won sinks further, others follow suit
South Korean won sinks further, others follow suit
SINGAPORE (Reuters): Bears dominated trading in most Asian currencies yesterday after the South Korean won sank to a new low against the U.S. dollar, prompting one central bank -- Indonesia's -- to intervene, forex dealers said.
They said further weakness in regional currencies was expected unless the respective authorities intervene.
The bearish sentiment was heightened by a 7 percent plunge in the Malaysian stock market.
"Korean won and the sharp drop in Malaysia's stock market were the two main factors today. We are looking at the return of competitive devaluations in the region," said a dealer with a European institution in Singapore.
The won hit an all time low of 1,012.80 even as its finance ministry denied having totally abandoned its defense.
"The market was unimpressed. The concern now is Korea is in a real mess and there is a very good chance it will need aid from the International Monetary Fund (IMF). Despite its denials, the market perception is that it will need help," said a dealer with a local bank.
Asked about the outlook for the won, he said: "There is no target, no such thing as a stop since it hinges on sentiment and sentiment is very poor."
The dealer, however, said 1,200 could be "the magical resistance" for the won at year-end.
Fears of a contagion effect from the ailing won sent the Malaysian ringgit reeling to a low of 3.4000 per dollar on late yesterday and dealers said it could test 3.5000 easily.
The ringgit was further depressed by its stock market collapse on news infrastructure firm United Engineerings (Malaysia) Bhd. had bought a big stake in Renong Bhd., a move seen negative for UEM.
"Stops were triggered as U.S. and offshore funds bought dollar/ringgit from around 3.38," said a dealer with a European bank in Kuala Lumpur.
"We might see the ringgit/Sing retesting its low of 45 in the coming weeks," said the dealer with a European institution in Singapore.
The Singapore dollar too sank to a low along with the won. Singapore dealers said 1.5910 was traded in the morning.
"In the medium term, the Singapore dollar could test 1.62 easily if the Korean won weakens further and the ringgit problem worsens," said a local dealer.
Dealers were awaiting details of measures to shore up Singapore's ailing property sector announced by the government.
"I think at 1.6000, the authorities will be watching very closely. It would be a strong short-term resistance with possible interventions and corporate selling (of dollars)," said the local dealer.
The Thai baht too succumbed to the ailing won, testing the 40.00 level per dollar.
The baht was at 39.80/90 per dollar compared to 39.35/45 in the morning.
"The euphoria over the new government is over. People are watching real issues like financial reforms, debt roll-over for clearer directions," the local dealer said.
Interventions by the central bank throughout yesterday kept the rupiah unscathed from the contagion effect, dealers said.
The rupiah rose to 3,440 from 3,465 earlier.
"But the rupiah's strength is likely to be temporary. What is unique is the BI (Bank of Indonesia) intervened on its own this time. We want to see if the other central banks will intervene," said the local dealer.
Dealers said it was difficult for the central bank to support the rupiah because of the general weakness in the region.
Elsewhere in North Asia, the Taiwan dollar hit a 10 year low and ended at 31.770 to the dollar.
"The Taiwan dollar has to fall in tandem because Korea is its main competitor," said the Singapore-based dealer with a European company.