Southeast Asian currencies slip back as rupiah falls
Southeast Asian currencies slip back as rupiah falls
SINGAPORE (Dow Jones): Southeast Asian currencies mostly slipped against the U.S. dollar during Asian trading hours on Thursday, as the Indonesian rupiah surrendered the spectacular gain it made the previous day,
The Singapore dollar, and the new Taiwan dollar also dropped, falling in response to an early rebound in the U.S. dollar against the yen and the Deutsche mark.
"The focus has now switched to European interest rates," said Thio Chin Loo, Asian foreign exchange strategist at Banque Paribas in Singapore, as speculation mounted that the Bundesbank would move to reduce German rates before the year's end.
"The dollar has bounced against the mark and the yen, and that is translating to gains against the Asian regional currencies," Thio explained.
The dollar climbed against the yen in Tokyo Thursday with investors expecting an interest rate cut in Germany, dealers said.
In late trading, the dollar was trading at 117.70-74 yen, up from 116.82 yen in New York and 116.35-38 yen here late Wednesday.
The U.S. dollar's gains failed to extend to the Thai foreign exchange market, however, as the baht continued it's rally against the U.S. currency. The won also gained ground, inching fractionally higher. The Philippine peso went untraded as financial markets in Manila shut down at the approach of Typhoon Babs.
Once again the rupiah commanded the market's attention. After approaching its highest level in eight months in early trading, the Indonesian currency tumbled by nearly 10 percent from its intraday high as market confidence in the rupiah's rally appeared to evaporate.
After hitting an intraday low of Rp 7,100 in early trading, the U.S. dollar rallied sharply as market participants covered their short-dollar positions in response to comments from the senior economics minister, Ginandjar Kartasasmita, who warned that a strong rupiah could damage export competitiveness.
The U.S. currency's run-up subsequently stalled, when Bank Indonesia Director Miranda Gultom said she saw room for the dollar to drop to Rp 6,500 on continued central bank dollar- selling.
In late trading, however, the U.S. dollar resumed its upward trajectory, reaching Rp 7,762 toward the end of Asian dealing - substantially higher than its level of Rp 7,200 at the same time Wednesday.
The rupiah's see-saw trading left most market participants undecided over which way the currency would head next.
"It's a really difficult question: is the rupiah's rally sustainable?" asked Jonathan Hazell, foreign-exchange strategist at Barclays Capital in Singapore. While maintaining his long-term bearish view on Indonesia, Hazell did not rule out further rupiah appreciation in the short term.
Others agreed with this view. With Bank Indonesia said by traders to be converting between $5 million and $50 million of assistance funding into rupiah each day, and Indonesian state banks widely believed to be caught long the U.S. currency to the tune of hundreds of millions of dollars, market participants are wary of further rapid gains in the Indonesian currency.
If Bank Indonesia sells dollars aggressively, the dollar may break Rp 7,000. If it does, it will move to Rp 6,000 very quickly," said a trader at a joint-venture bank in Jakarta.
Should it occur, a rally of such magnitude would almost certainly prove unsustainable in the longer term, according to Thio at Paribas.
"I favor a move back to Rp 10,000," she said, explaining that as Asia's financial malaise spreads, Asian currencies will have to weaken to restore export competitiveness.
Late Thursday, the U.S. dollar was quoted at S$1.6236, up from S$1.6196 the day before, as the Singapore dollar slipped back in line with the yen.
Hedge funds are still said to be looking to sell the U.S. currency on rallies in order to exit long-U.S. dollar positions against the Singapore dollar.
Against the baht the U.S. dollar traded in a tight range for most of the day, falling in late trading to end Asian hours at 37.69 baht, down from 37.82 baht the day before.
Like the Singapore dollar, many traders argue that the Thai baht is looking top-heavy at current levels. With the Bank of Thailand also said to be prowling the market, looking to buy the U.S. dollar on dips to check any unwelcome volatility, few predict further big rises in the immediate future.
Among the North Asian currencies, the new Taiwan dollar sank, dragged down by the fall in the yen. At the close of trading in Taipei the U.S. dollar was quoted at NT$32.878, up from NT$32.843 the day before.
Against the won, however, the U.S. currency ended at 1,323 won, down from 1,325 won the previous day.