Published November 21, 2008

Asian currencies crumble under fire

Indian rupee hits record low, rupiah and won plunge; MAS may go for softer Sing $

By LARRY WEE
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(SINGAPORE) Asian currencies came under heavy fire against both the US dollar and Japanese yen yesterday, torpedoed by another heavy Wall Street sell-off that spilled over in bloody fashion into Asian bourses.

Key stock indices fell close to 7 per cent each in Tokyo and Seoul yesterday - and Singapore's STI was the best part of 4 per cent weaker at one stage - after news that Wall Street's Nasdaq composite index had led falls by nosediving 6.5 per cent on Wednesday night.

Traders said that triggered a fresh rush out of Asian currencies yesterday, which forced the Indian rupee to a record low of 50.57 per US dollar, and pressed the South Korean won and Indonesian rupiah to revisit fresh lows not seen since the dark days of the Asian crisis in 1998 - of 1,515.8 won and 12,275 rupiah per US dollar respectively.

Standard Chartered Bank researchers warned on Wednesday that those three currencies as well as the Philippine peso would be vulnerable to renewed attack because of their countries' weak external accounts.

'Current account/trade deficit currencies such as the Korean won, Indian rupee, Indonesian rupiah and the Philippine peso will weaken further as long as the credit crisis is ongoing and foreign investors continue to unwind long positions in local stock markets.'

Indeed, few Asian currencies were spared yesterday, with the notable exception of the Japanese yen and the pegged Hong Kong dollar. For the latter, Hong Kong authorities reportedly sold their currency against the US dollar no less than half-a-dozen times yesterday to prevent the latter from falling through its lowest allowed base of HK$7.75.

Elsewhere, however, the greenback once again recorded fresh 2008 highs of S$1.5334, RM3.6265 and 35.19 Thai baht, while the Australian and New Zealand dollars were hit badly by a double whammy of sharply lower commodity prices and renewed yen strength.

In short, it was the risk aversion story repeated ad nauseum, benefiting the yen and US dollar at the expense of just about everyone else's currency.

Stanchart researchers warned yesterday that strong deflationary forces on the asset and commodity side would be unambiguously negative forces for Asia ex-Japan currencies.

'he likes of Singapore, Hong Kong and Malaysia in particular have high export/GDP ratios and need weaker currencies to offset the hit to their external side - albeit the Hong Kong dollar will remain firmly within its 7.75-85 band,' they said in a research note yesterday.

Yesterday, 100 rupiah was translated to S$0.00127. In other words, each Singapore dollar was worth around 7,879 Indonesian rupiah and 33 Indian rupees.

Indeed, following a sharp fall in the Republic's non-oil domestic exports recently, there has been growing speculation that the Monetary Authority of Singapore (MAS) may be persuaded to announce a further easing in monetary policy via a softer trade-weighted Singapore dollar before the authority's next policy meeting in April 2009.

Some traders and researchers have even warned it could come as soon as today, should the final figure for Singapore's Q3 GDP be much worse than flash estimates of minus 0.5 per cent year-on- year and minus 6.3 per cent quarter-on-quarter.

In Asian trading yesterday, the US dollar eventually closed 1.5 per cent worse off at 95.42 yen but also soared 3.4 per cent to 1,497.8 Korean won.

Elsewhere, it finished about unchanged from Wednesday at S$1.5287 but strengthened a further one and 1.2 per cent to close at 50.42 Indian rupees and 12,050 Indonesian rupiah respectively. Down Under, the Australian and New Zealand units suffered losses of 2.8 and 1.7 per cent - to finish at 62.79 US cents and 53.86 US cents respectively.