Regional negative sentiment has lured foreign investors back into a speculative foray against asian currencies in both offshore spot and swap markets, forcing the baht down to Bt38 yesterday-its lowest level in four months. " I would call this a speculative game" said Satiah Tantanasarit, senior vice president of DBS Thai Danu Bank.

He explained that investors have resumed a speculative approach by borrowing the baht in the offshore swap market for US dollar purchases in the spot market. Other currencies have already experienced the same phenomenon.

Dealers said speculative activities led by US funds continue to undermine Asian currencies yesterday, with the baht falling to 37.93-38 against the US dollar from Bt 37.78 at the previous close and the Philippine peso declining to 39.15 pesos. The greenback held below Bt 37.92 most of the day, but a spate of buying at the end of the trading day, when local sellers were inactive, pushed the dollar up to its high at the close in very thin trading volume. "I believed that this was for speculative reasons," a local dealer said.

The plunge in the Indonesian rupiah was the most spectacular in a series of regional currency sell-offs. In hectic trading between Monday's Asian close and late yesterday morning, the rupiah crashed a massive 13 percent. Dealers reckoned that volumes of over US$1 billion had been transacted in just a day and a half, pushing the greenback to a two month high at 8,100 rupiah.

Satian noted that the demand for offshore baht was relatively high reflecting a significant rise in swap rates. Yesterday, the implied one month baht yield rose to 6.6 percent from 3.5 percent in early July while that for three and 12 months jumped to 7.3 percent and 8.5 percent, respectively.

Over the last week, the implied one month rupiah yield had also surged, to reach 16.5 percent late yesterday morning, from around 12.8 percent a week previously. Over the same period, the three-month implied yield has risen to 18.4 percent from 13.6 percent. To Satian, speculative dollar buying is expected to push the baht to break the Bt38 level in the near future to hover around 38.20 against the US dollar before heavy profit takings would then set in.

Adisak Teeramesvanich, senior dealer of Citibank in Bangkok, said that persistent fears over a US interest rate hike, ongoing tensions between China and Taiwan, and the prospects of a Chinese yuan devaluation early next year have fuelled offshore investors to unload their regional currencies holdings into the greenback.

In Indonesia, investor sentiment has been badly hit by revelations that 546 billion rupiah was transferred illegally from Bank Bali to a company controlled by the deputy treasurer of the ruling Golkar party. Dealers in Jakarta said that Bank Indonesia official's confirmation that around US$400 million of banks' offshore debts will mature on August 25 was also one factor behind dollar/rupiah demand, propelling the rupiah lower.

Despite a sharp plunge in the rupiah, the governor of Indonesia's central bank, Syahril Sabirin, was quoted as saying by Agence France Presse that it had ruled out intervention to shore up the diving rupiah and expressed optimism that its weakness was only temporary. " If the rupiah weakens over 7,000 (to a dollar), it is clearly not realistic... I am certain it won't last long,' Syabirin told the news service. "Is there any need for intervention ?.. No, the Bank Indonesia has not so far and will not intervene," Syabirin said, adding the rupiah current downturn would not last a week.
 

The Nation 12 August 99