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.