Yen fall drags SE Asian currencies
Yen fall drags SE Asian currencies
SINGAPORE (Dow Jones): Dashing hopes of a reprieve for Southeast Asian foreign exchange markets, the yen dropped afresh in Asian trading hours on Wednesday, dragging regional currencies down with it.
As the U.S. dollar broke up through the key 140-yen barrier for the first time since the U.S. Federal Reserve intervened to support the yen a week ago, the Singapore dollar, the ringgit, the baht and the Philippine peso all fell in line with the yen.
And with the market's attention clearly focused on unfolding events in Japan and China, there is little prospect of Asia's regional currencies breaking their fateful link with the Japanese currency, say analysts and traders.
"The dominant influence on regional currencies will continue to be the direction of the yen," said Paul Alapat, regional economist at Indosuez W.I. Carr Securities in Singapore. "In term of domestic influences, on a two-week perspective there is really nothing major to balance the effect of the yen's movements."
The right policies at this stage include maintaining monetary tightness, said Rajeev Malik, regional economist at Jardine Fleming in Singapore. No matter how strident the domestic calls to lower interest rates and relieve the pressure on corporate sectors, governments have no choice but to keep rates high if capital flight and snowballing currency depreciation are to be avoided, he says.
It's too early to remove the support of high interest rates yet. The best we can hope for is that more orderly foreign exchange markets in the second half of the year will gradually open up room for a more discretionary monetary policy stance," agreed Alapat at Indosuez.
Even granted stability in the yen, there is little prospect of a recovery in Southeast Asian currencies, argues Alapat, who is targeting year-end rates of around S$1.80, 4.5 ringgit Malaysian ringgit and 45 Thai baht to the U.S. dollar.
Others in the market agree with this bearish stance, and continue to search for levels at which to sell regional currencies short.
Market participants, he explained, are still trading the Singapore and the Malaysian currencies as proxies for other less liquid regional currencies, including the rupiah, which he described as a "virtual currency," it is so thinly traded.
"All the optimism and pessimism towards the region is reflected in the Singapore dollar and the ringgit, and net-net, the market is still very pessimistic on Southeast Asia," he said.
Late in Asian trading on Wednesday the U.S. dollar was quoted at S$1.6503, down from its early afternoon intraday high of S$1.6630, but still up from S$1.6378 in late Asian trading the previous day.
Against the ringgit the U.S. currency was at 3.9525 ringgit, up from 3.9210 ringgit late in Asia on Tuesday.