Region crushed in US dollar stampede
Asian currencies and equity markets were yesterday again crushed under a scramble for US dollars.
The Indonesian rupiah, Malaysian ringgit, Thai baht, Singapore dollar and Philippine peso hit record lows, as the US dollar further strengthened against the Japanese yen.
Australia and New Zealand were caught in the slide and gold dipped to an 18-year low of US$281.30 per ounce in Hong Kong amid rising concerns of global deflation.
Strategist at Daiwa International Capital Management, Peter Perkins, said: 'People are bringing forward their perceptions of 1998 and coming in with a very gloomy view and then taking it out on the currencies.
'We can see very little promise for anything in the region for the first half of the year,' Mr Perkins said.
Sani Hamid, currency analyst at Standard & Poor's MMS International, said: 'Dealers are coming into the market for a new year with zero positions.
'They are looking to make money over the next two to three months and the only way they feel they can do that is by buying US dollars,' Mr Hamid said.
Exacerbating the problem was United States Federal Reserve chairman Alan Greenspan's weekend warning of potential US deflation caused by Asian exporters unloading a glut of cheap goods on the American market aided by their sharp currency depreciations.
Deflation has not occurred in the US on a broad scale since the Great Depression of the 1930s and if it happens again it could trigger a severe global slowdown.
Analysts said this was adding to yesterday's flight to quality, which is now seen as US dollars or US bonds.
The rupiah broke 7,000 to the US dollar barrier, promptly fell to 7,700, then bounced back to 7,000 in late trade amid short-covering. The currency has fallen 25 per cent since the beginning of the year.
The ringgit crumbled to M$4.345 from M$4.02 and Malaysian stocks plunged a further 3.8 per cent as concern mounted over the country's short-term debt.
New figures from the Bank of International Settlements showed Malaysia's short-term debt at 56 per cent of borrowings from overseas banks, higher than analysts' 30 per cent estimate.
Feeling the knock-on, the Singapore dollar touched a record low of S$1.74, despite rumoured Monetary of Singapore intervention, and Singapore stocks plunged 3.8 per cent.
The baht hit a new low of 52 baht to the US dollar onshore, stung by Prime Minister Chuan Leekpai's comments on Monday that he wanted to review Thailand's International Monetary Fund bailout and reform package.
The peso was suspended from trading for the day after hitting a new record low of 45.209 pesos to the US dollar, while the New Taiwan dollar hit a 10-year low of NT$33.999 in early trade.
With most regional currencies expected to fall further during the first quarter, corporates needing hard currency want to buy US dollars now instead of paying more later.
Bob McKee, economist at Independent Strategy in London, said: 'Companies are trying to cover their foreign exchange debts, which in turn is driving currencies lower and which in turn increases their foreign exchange losses and their foreign debts in local-currency terms.
'This is going round in circles.' Kobus van der Wath, head of treasury economics at Standard Chartered Bank, said: 'With no new measures to address the deterioration in sentiment, there is a spiral of negative sentiment.
'Importers and corporates are scrambling for US dollars. There's very little speculation behind this.' Mr Perkins can see no end to the deterioration of Southeast Asian markets in the short term unless a glut of profit-taking sets in, or there is some aggressive emergency action by the IMF or US Treasury to buy up Asian debt.