1. The reaction in Singapore to the news that Beijing and
Kuala Lumpur would no longer peg their currencies to the
dollar was welcoming but cautious. While press articles
reflected clear relief that a politically charged issue has
been resolved, lack of information on the details of the new
currency regimes has muted reaction on the economic
consequences of the changes. The Monetary Authority of
Singapore (MAS) moved quickly to forestall any potential
exchange rate volatility, issuing a statement that it
expected the impact of the moves on the Singapore dollar to
be "small." Traders told us that MAS intervened by buying
perhaps USD 2.5 to 3 billion last night and today to offset
speculative pressure on the Singapore dollar to appreciate.
The Singapore dollar was at 1.6618 to the USD at about 5 p.m.
Friday, up from 1.6788 at 7 p.m. Thursday, Singapore time.
MAS confirmed that the Singapore dollar was trading at "the
top of the band" today, and an analyst told us that MAS had
let the Singapore dollar breach the band and trade above it
for some time. MAS, said the analyst, is taking an
incremental, cautious approach until it has a better sense of
where the various Asian currencies will move in the next few
days. Traders here said the Malaysian central bank had
intervened by buying about USD 2 to 3 billion today, as well.




2. Several analysts said that China's revaluation of the
yuan was smaller than generally anticipated, and one analyst
noted that the change was not so much a move from a
dollar-peg to a managed float as a move from a dollar-peg to
a basket-peg. Most analysts were uncertain, however, about
China's next move, noting that Beijing may choose to move the
peg again soon, possibly as early as tomorrow. Analysts in
Singapore focused more attention on the Malaysian
announcement; unlike Beijing, Kuala Lumpur did not announce a
target trading range for the ringgit, raising the possibility
that it could appreciate substantially over the next several
weeks. A large move in the ringgit could have significant
consequences for Singapore; Malaysia is its largest trading
partner, and the ringgit is widely believed to be heavily
weighted in Singapore's own currency basket.



3. Comment: Overall, Singapore markets appear to be taking a
"wait-and-see" approach to the new regimes, until the impact
of the changes on the Singapore dollar becomes clear. While
a currency appreciation in two of its largest markets may be
a boon to Singapore's exports, some analysts expect these
close trade ties and the heavy weight of the ringgit in the
Singapore dollar's currency basket to act as a "double
whammy," causing a significant, eventual appreciation of the
Singapore dollar. End comment.
FERGIN