Southeast Asian currencies ride out Brazilian storm
Southeast Asian currencies ride out Brazilian storm
SINGAPORE (Dow Jones): Southeast Asian currencies survived a day of nervous trading activity following the effective devaluation of the Brazilian real, to end Asian hours on Thursday mixed against the U.S. dollar.
In North Asia both the new Taiwan dollar and the South Korean won ended lower following Wednesday's announcement by the Brazilian central bank that it was to widen the real's trading band. The decision triggered an immediate 8.2 percent plunge in the real and spread shockwaves through financial markets in the U.S. and Europe.
Even though most Southeast Asian currencies held up relatively strongly, traders warned that the reverberations from the real's fall will still continue to rock regional markets in the near term.
"The dollar will stay bid over the next few days," cautioned one regional foreign exchange trader at a U.S. bank in Singapore. "People would rather be long than short (U.S. dollars) going into the weekend. They have been burned before."
Most heavily affected of the Southeast Asian currencies was the Indonesian rupiah, which on Thursday was forced to its lowest level against the U.S. dollar in over two months.
"Over the past two weeks we have seen foreign investors buying into Indonesian stocks, but after the Brazilian crisis people are no longer comfortable holding rupiah," said a trader at a European bank in Jakarta. "In such a thin market this has caused a snowball effect."
Although other Southeast Asian currencies, including the Philippine peso and the Thai baht, also suffered from Brazil- induced jitters at the start of the day, by the end of Asian trading they had recovered most, if not all, their earlier losses.
On the Philippine Dealing System the peso came under heavy pressure early in the session, but later clawed back the bulk of its losses to finish the day only slightly lower against the U.S. dollar.
Acknowledging that the turmoil in Brazil is likely to dent investor confidence in emerging markets, including the Philippines, a senior Philippine Central Bank official said. "The Philippine economy is in good shape to withstand the contagion."
The central bank, he said, is prepared to raise interest rates to defend the peso, should the currency come under further pressure as a result of the real devaluation.
At the close of local trading, the U.S. dollar was quoted at 38.500 pesos, up from 38.460 pesos at Wednesday's close, but well down from Thursday's intraday high of 38.850 pesos.
The Thai baht also dipped early in the day, before recovering slightly after encountering good support.
"We are getting a bit of business from customers who are buying the dollar against the baht, but this is being driven more by nervousness than by anything else," reported one regional currency trader at a U.S. bank in Singapore.
After the U.S. currency was pushed up as high as 37.05 baht in early Asian trading, dollar sales from onshore banks triggered a bout of profit-taking and the dollar slipped back again.
Towards the end of interbank trading in Asia, the U.S. dollar was being quoted at 36.8900 baht, well down from its earlier high and actually lower than 36.9550 baht late in Asian trade on Wednesday.
The pressure on the baht was attributed in part to selling from U.S. investment banks. Following the devaluation of the real they moved to unwind some of the long baht/short Singapore dollar positions established in recent weeks, driving the baht lower and the Singapore dollar higher, according to traders.
Late in Asian trading the U.S. dollar was quoted against the Singapore currency at S$1.6822, down from S$1.6855 at the same time the day before.
"When the dollar failed to go much higher against the regionals after the real's devaluation, the market lost its momentum, so now people are reducing their positions," explained a trader at a second U.S. bank.
In North Asia, both the New Taiwan dollar and the Korean won succumbed to Brazilian-inspired jitters as market players covered short U.S. dollar positions.
Against the Taiwanese currency, the U.S. dollar finished at NT$32.255, up from NT$32.212 at the previous close, despite U.S. dollar sales from the central bank.
Against the won, the U.S. dollar ended at 1,186 won, up from 1,174 won the previous day.