Trading in Singapore dollar hit by Brunei loss report
Trading in Singapore dollar hit by Brunei loss report
SINGAPORE (Dow Jones): The Singapore dollar took a sharp dive in trading in Southeast Asian foreign exchange markets yesterday, sold by interbank traders on reports of heavy investment losses by a senior member of Brunei's royal family.
Activity in other regional currencies was more subdued.
The Thai baht, supported by high offshore interest rates, strengthened as the market anticipated an inflow of funds from forthcoming bond issues.
The ringgit and the rupiah, however, drifted lower in light trading thinned by the absence of participants from domestic markets in Kuala Lumpur and Jakarta, which were closed for holidays.
With the yen maintaining relative stability, and little fresh news from the region, the Singapore dollar saw the most trading activity.
After dropping steeply in late Asian trading Friday the Singapore dollar encountered more selling pressure early yesterday as the interbank market reacted to a report in the U.K.'s Sunday Telegraph.
The report, which was repeated by Sydney Morning Herald yesterday, alleged that Amedeo, a Brunei-based company controlled by Brunei's Prince Jefri Bolkiah, brother of the ruling Sultan, had collapsed with losses of around US$16 billion.
Government offices in Brunei were closed yesterday for a public holiday, and no one could be reached for confirmation.
As the Brunei dollar is linked to the Singapore dollar via a currency board mechanism, any impact on Brunei's economy from losses at Amedeo would be reflected in a fall in the value of the Singapore dollar, traders said.
Foreign exchange traders did not wait for official confirmation of the story before waiting to bid up the U.S. dollar against the Singapore currency, however.
"It started on Friday when a customer came into the market to buy U.S. dollars," said a trader at a German bank in Singapore.
"Even without these stories customers would be buying (U.S.) dollars, because right now the dollar is a long way below its equilibrium level," he said.
Late in Asian trading the U.S. dollar was quoted at S$1.7128, down from its earlier high of S$1.7170, but still well above S$1.6966 late Friday.
Also cited as a reason to sell the local currency was an interview with Singapore's Senior Minister Lee Kuan Yew published in the latest Asian edition of Business Week magazine, in which Lee said that high interest rates are hurting regional economies instead of stabilizing them.
And if the regional economic downturn continues, Lee warned that "Singapore may move into recession."
Lee is the latest Asian politician to add his voice to a growing chorus of criticism directed at the tight monetary policies advocated by the International Monetary Fund.
Already politicians in Malaysia, Thailand, the Philippines and South Korea have called for interest rates to be lowered to reduce the pressure on domestic businesses.
Initially skeptical, some private sector economists are now saying that there may be scope to cut regional currency interest rates, although they stress that the room for maneuver is limited, if a fresh spiral of currency depreciation is to be avoided.
Tight liquidity, particularly in the offshore market, contributed to a firming of the baht yesterday, however.
As the short-term interest rate implied by the offshore tomorrow/next day U.S. dollar/baht swap offer rate rose to 76.16 percent from 40.89 percent late Friday, traders bought baht to cover their exposure as the cost of funding short positions in the Thai currency soared to prohibitive levels.
The Thai currency was also bolstered by buying from market participants anticipating an inflow of funds from around US$2 billion of planned bond issues, traders said.
Late in Asia the U.S. dollar was quoted at 41.3300 baht, down from 41.4550 baht at the end of Friday's trading.
With domestic markets closed for a holiday yesterday, both the ringgit and the rupiah drifted lower in offshore trading in parallel with the sell-off in the Singapore dollar.
Late in Asia, the U.S. dollar was quoted at 4.1775 ringgit, up from 4.1450 late Friday. Against the rupiah, the U.S. currency was quoted at Rp 14,575, compared with 14,375.
The Philippine peso also ended lower, with the U.S. dollar closing at 41.480 pesos, up from 41.330 on Friday.
North Asia's currencies were mixed, with the new Taiwan dollar inching a touch lower on fears that the yen would weaken further, while the won rallied on healthy U.S. dollar inflows from exporters.
In Taipei the U.S. currency ended trading at 34.426 Taiwan dollar, up from 34.382 at Friday's close.
At the close of domestic trading in South Korea, the U.S. dollar was quoted at 1,345.50 won, down from 1,356.50 at Friday's close.