The American dollar is still on a roller coaster ride, one that seems to have one steep drop in it.  The cost of the overnight dollar funds when the market opened in Asia on Monday, November 10, 2008, was unchanged, staying at near zero levels.  Additionally, longer term rates have showed that the credit markets have seized up and were going to take a long time to return to normal levels.  In Singapore and Hong Kong, the overnight dollar rate was quoted at 0.1 to 0.6 percent.  This number is well below the Federal Reserve’s 1 percent target rate and the ranges are similar to those dealt in London and New York.

The three months rates eased at 2.25 and 2.5 percent and held steady at a fixed 2.285 percent in Hong Kong and Singapore respectively.  These numbers are almost in line with the LIBOR numbers from Friday and just slightly lower than the 2.3 to 3 percent range that was reported in Asia on Friday.  Part of the problem seems to be the big cash injections by the central banks driving the cost of the dollar way below the target rate set by the Federal Reserve.

According to an anonymous trader in Singapore, “Governments are supplying funds. But you have to see how much really gets dealt between banks.”  The trader went on to say that adding volumes in inter-bank lending beyond one week is still a fraction of what they were before the credit crisis hit the United States and the rest of the world.

“Banks are flooded right now with short-dated money. Even if you go out to two weeks, certificates of deposit are trading at only 60 bps,” claims a trader in Hong Kong.  “Banks just did not want to keep the money given the liquidity, and it explains why overnight funds would trade at zero percent.  The other thing is your money may be kept in one bank and you may want to scatter your money to several banks. You don’t want to concentrate your exposure in one bank,” he added.

The current lending rates indicate that the banks have been wary of lending to one another for longer than short term periods of time.  This is even after massive guarantees and cash injections were provided to the banks by the governments.  Governments realize that the cash injections will take time to improve the dollar’s condition, but until then traders and investors are watching it carefully.