Asian Currencies Continue To Slide

Asian regional currencies attempted on Monday to claw back some fairly dramatic losses, but the pressure is still on and unlikely to ease much in the near term, currency analysts said.

After their speculative forays, some players have backed off for fear of aggressive central bank intervention and the subsequent illiquid markets have exaggerated currency movements.

I think what we are seeing now is mostly because of the thinness of trading, but that doesnt mean to say its over, said Angus Armstrong, chief Asia economist at Deutsche Morgan Grenfell in Singapore.The yield curves have been disinverting, suggesting that some of the pressure is coming off, but we are long way from stability. The fall in short dated interest rates, and subsequent flattening of inverted yield curves, is consistent with a drying up of activity as investors shy away from borrowing to re-establish fresh short positions in currencies. While some, like Malaysias ringgit, were attempting to recover on Monday, the Indonesian rupiah was getting it in the neck on and stretched Fridays decline to 2650.00 per dollar for a seven percent fall over two trading days.

Traders said the speculative attack on the rupiah gathered pace as investors turned their attention away from the ringgit and Singapore dollar. While the Indonesian central bank had been checking rates, no intervention had been seen.

Over the past three or four weeks, the rupiah has been getting off lightly as investors reckoned the relatively high interest rates compensated for the currency risk. I never fully bought into that, said Larry Hatheway, chief East Asia economist at UBS in Singapore. Although I dont think the fundamentals there are terribly unsound relative to Malaysia, it seemed to me that Indonesia was getting off without a lot of selling pressure.

Analysts expressed some surprise at the extent of the Malaysian ringgits move at the end of last week, when it dropped to its lowest level against the dollar since the middle of 1994, a five percent drop on the week.

The Malaysian central bank, Bank Negara, has stayed out of the market and let the ringgit slide, but analysts reckon this is in preparation for an attack on speculators.

Negara are being quite clever but they dont really have a choice, said one trader. They are letting the ringgit go to set everybody up in a bear-market squeeze...which Im quite sure is what they are hoping to do.

The Philippine peso came under further pressure early on with the central bank coming in and selling dollars, but as with the other markets volume was extremely light.

The Singapore dollar regained some of its composure after being hit last week but only at the cost of higher short-term rates which spiked up as money market liquidity remained tight.

Thailand was closed for a holiday and while offshore baht were trading in Singapore, the rate was steady at Fridays close around 30.350 per dollar.

While the pressure was likely to remain on Asian regionals, particulary as the U.S. dollar remains well bid against major currencies, traders will remain nervous of central bank intervention so further falls ought to be restrained.

For these markets we have seen sizable moves and the sort of moves we havent seen for a long time, UBSs Hatheway said.

There is always the possibility the central banks may come in and that may make a lot of participants back off and stay on the sidelines.