Southeast Asian currencies rally after yen gains ground
Southeast Asian currencies rally after yen gains ground
SINGAPORE (Dow Jones): Southeast Asian currencies rallied across the board yesterday, tracking the Japanese yen's overnight move higher against the U.S. dollar.
Regional currencies are likely to remain in relatively tight ranges against the U.S. dollar through the end of the month, as traders keep a close eye on political developments in Japan.
Japanese Prime Minister Ryutaro Hashimoto resigned on Monday to take responsibility for the ruling Liberal Democratic Party's defeat in Sunday's Parliamentary upper house elections.
However, LDP officials have said that a replacement will not be selected until July 21, and is unlikely to be confirmed in Parliament before the end of July.
The extended uncertainty in Japan has many market players predicting a trading range for the yen until the political situation becomes more clear.
A trading range for the yen means a trading range for regional currencies, some analysts say.
There is a potential exception from the yen, there are some common loves and some common hates," said Daniel Lian, head of Asian markets research for ANZ Investment Bank in Singapore.
"The ringgit is one currency that people love to hate. Most would like to short it if they could," he said, noting however that continued high swap rates made it very expensive to maintain a short position on the ringgit.
Although the tomorrow/next implied swap offer rate (the interest rate charged to offshore borrowers) has come off from intraweek highs of 84% to about 13.5% late Wednesday, ringgit swaps remain higher than any other liquid Asian currency.
Nevertheless, the ringgit may weaken going forward, according to van der Wath.
"Recent comments by Finance Minister Anwar Ibrahim (that GDP may contract by 1 percent-2 percent in 1998) are a fairly realistic appraisal of the economy," said van der Wath, noting that the candor is a positive turn of events for the ringgit. "However, the ringgit may get softer going forward because of the slowing economy," he added.
Around 0930 GMT (5:30 a.m. EDT) the U.S. dollar is quoted at 4.1600 ringgit, down from 4.1850 ringgit late in Asia the previous day.
The Singapore dollar tracked the yen closely Wednesday, but dealers said late in the day that U.S. entities selling dollars at 1.6950 may push the Singapore dollar even stronger.
A trader at a local bank said he expects the U.S. dollar to trade in a range of S$1.6850 to S$1.7050 tomorrow.
"At S$1.6900 fund managers have orders to buy U.S. dollars, while people with long U.S. dollar positions are looking to get out at S$1.7000," he said.
At 1005 GMT (6:05 a.m. EDT), the U.S. dollar was trading at S$1.6925, below S$1.7045 late in Asian trading Tuesday.
Against the Thai baht, the U.S. dollar was quoted at 41.3250 baht, down from 41.3750 baht late the previous day.
The Indonesian rupiah was trading stronger Wednesday amid extremely limited interest.
"It doesn't really matter if the dollar is trading at Rp 15,000 or Rp 14,000," said Standard Chartered's van der Wath. "The country is still bankrupt either way."
Against the rupiah, the U.S. currency is quoted at Rp 14,350, down from Rp 14,775 late in Asia on Tuesday.
On the Philippine dealing system, the peso closed higher against the U.S. dollar in thin trading.
The dollar finished at 41.690 pesos, down from Tuesday's close of 41.830 peso.
Meanwhile, in Northeast Asia, the South Korean won continued its liquidity-driven rally against the U.S. dollar.
The U.S. currency closed at 1,282 won, marking the lowest close since Dec. 5, when the dollar closed at 1,230 won. The dollar closed at 1,288 won Tuesday.
"The Korean won is basically bucking all trends," said van der Wath, noting that the currency's sharp appreciation was due to South Korea's positive trade balance.
"There are a lot of dollars available in Korea at the moment to be sold," he said.
Traders in Seoul said the dollar could have slid further but for the fear that the central Bank of Korea would intervene to stop the further rise of the won.
The New Taiwan dollar ended slightly higher Wednesday on exporter selling of U.S. dollars.
The currency traded within a narrow range the entire session, mimicking the yen's stability on international markets, according to foreign exchange traders in Taipei.
The U.S. dollar ended at NT$34.392, down from NT$34.409 Tuesday. Trading volume remained moderate at US$218.0 million, compared with US$165.5 million the previous session.