Currencies Firm But Worried By Indonesia

Indonesia's currency board dilemma dominated trade in Asian foreign exchange markets again on Wednesday, but traders appeared to be losing interest as the issue dragged on with no sign of a clear resolution.

Most Asian currencies firmed in thin, technically-driven trade as players became increasingly reluctant to commit themselves against a backdrop of uncertainty in Indonesia. The rupiah remained comfortably above the 10,000 per dollar level, but its gains were expected to be capped due to persistent anxiety about Indonesia's political and economic outlook. Singapore's Business Times newspaper quoted an unnamed senior Indonesian government official as saying Jakarta had decided to jettison discreetly plans to adopt a currency board. "I can tell you that, as of yesterday, we have been quietly orchestrating the burial of the currency board proposal," the newspaper quoted the official as saying.

 

But all signals from Indonesia suggested the plan was still on the cards. New Bank Indonesia (BI) governor Sjahril Sabirin was quoted as saying Indonesia would be in constant touch with the IMF over the proposed board. The market was also worried by growing indications Research and Technology Minister Jusuf Habibie would be the next vice president -- and the likely successor to President Suharto. Other Southeast Asian currencies benefited from the rupiah's improvement and dealers said market sentiment and technical factors suggested more near-term gains.

The Singapore dollar surged to a high of 1.6420 to the US dollar as US funds sold dollars from the 1.6740 level, triggering stop-loss sales at 1.66 in a relatively thin market. "I believe the market is very long on dollars. Those who were structurally long above 1.80 were just dumping dollars. I think we could go to 1.63 tonight," a European bank dealer said. The Malaysian ringgit firmed through the 3.80 per dollar level, helped by stock market gains and buying of the ringgit/Singapore dollar cross. The Thai baht and Philippine peso were also stronger but doubts about Indonesia discouraged trade. Taiwan dollar finished firmer, reversing an early decline, on late US dollar sales in theNDF market and foreign fund inflows to the stock market.

While the baht was beginning to stand on its own feet, dealers said a dramatic move in the rupiah would have an inevitable knock-on effect despite signs Thailand was handling its economic woes well. The Hong Kong dollar was largely steady and interest rates fell sharply on the government's better than expected budget proposal.(Reuters)