SINGAPORE: The Indonesian rupiah hit its lowest level in more than four months on Tuesday, pressured by dollar-buying in non-deliverable forwards by hedge funds and as some investors used forwards to hedge against further declines in the currency.
The outlook for emerging Asian currencies against the dollar is far from clear in the wake of their recent volatility, said a currency analyst for a US financial institution in Singapore.
"This is really not the time to be ambitious and try to play for the big up-move or the big down-move," he said.
The analyst said a better bet may be to take positions in intra-Asian crosses "particularly those that give you decent carry, something like short Taiwan, long Indonesian rupiah or long Thai baht".
Traders and analysts said the slide in emerging Asian currencies in the past week has been driven by short-covering in the US dollar by short-term players such as interbank speculators and hedge funds rather than longer-term, real money investors.
"Real money names are probably still not exiting in a big way...The question is what will trigger real money names to exit," said Suresh Kumar Ramanathan, regional rates and foreign exchange strategist for CIMB Investment Bank in Kuala Lumpur.
"Three events or possibilities -- one is if funding squeeze in USD LIBOR moves sharply higher next month, second, if economic growth in Asia is revised downward further and third, if (interest) rates in Asia are cut," Ramanathan said.
The US dollar's rally against the euro over the past week has had knock-on effects on Asian currencies, which have also been pressured recently by worries that Asian economies may increasingly feel the pinch from a slowdown in developed economies.
INDONESIAN RUPIAH
Rupiah dipped to as low as 8635 against the dollar, its lowest since late April, said a dealer for a European bank in Jakarta.
Traders said dollar buying against the rupiah in non- deliverable forwards (NDFs) by leveraged accounts and model funds helped drag the Indonesian currency lower.
The dealer for a European bank in Jakarta said some overseas investors with Indonesian bond holdings, both fast money types and long-term players, have been buying the dollar against the rupiah in NDFs to hedge against further declines in the rupiah.
Such dollar-buying via NDFs was detected starting on Monday, the dealer said.
SINGAPORE DOLLAR
A Singapore-based trader said he thought short dollar positions may have been reduced significantly over the past few days, after some "massive" dollar-short covering by hedge funds and interbank players.
In the previous three days, dollar/Sing had climbed 2.2 percent, the Singapore dollar's worst three-day sell-off since May 2010.
Strengthening market expectations that Singapore's central bank would ease monetary policy in October by reducing the appreciation slope of the Singapore dollar's policy band, have helped drag the Singapore dollar lower in recent sessions.
Singapore's central bank, the Monetary Authority of Singapore, is expected to issue its policy statement in October.
Copyright Reuters, 2011
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