Dovish Fed minutes fail to lift Ringgit much on China woes

August 21, 2015 | By | Reply More

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bursa-malaysia

SINGAPORE: Emerging Asian currencies lacked upward momentum on Thursday despite reduced expectations of a US interest rate hike in September as worries about China’s growth and continuing volatility in its stocks hurt sentiment.

The Malaysian ringgit weakened even after Prime Minister Najib Razak said he would not peg the currency or
implement capital controls in a move to ease fears about fund outflows.

Regional units started the day firmer on a weaker US dollar after minutes of the Federal Reserve were read by
analysts as indicating policymakers were in no hurry to increase borrowing costs.

Fed officials widely agreed last month that the US economy was nearing the point where interest rates should move higher, but worried lagging inflation and a weak global economy posed too big a risk to commit to “liftoff”.

But emerging Asian currencies cut most of earlier gains and many of them turned weaker in the afternoon. China’s major stock indexes fell more than 3 percent in the afternoon, underscoring concerns that unstable financial markets may hurt the world’s second-largest economy even further.

“We stay firmly negative on most of the Asian currencies,” said Heng Koon How, Credit Suisse Private Bank’s senior currency strategist.

“The underlying long term negative domestic drivers remain, including new concerns over the impact of the recent CNY devaluation, on exports and tourism across the region. The ongoing volatility (in Chinese equities) does not help the weak risk sentiment at all,” said Heng.

The dollar’s weakness after the Fed minutes is expected to be temporary, so investors should use the slide as a chance to hedge their greenback risks against more depreciation in regional currencies, he added.

Pessimism about emerging Asian currencies in the past two weeks grew to its worst in years, with bearish bets on the yuan at their largest in more than five years, a Reuters poll showed earlier.

Ringgit

The ringgit opened stronger as traders covered short positions on the dollar’s retreat.

The Malaysian unit failed to maintain the strength as falling oil prices highlighted concerns over the country’s
exports. Malaysia is a major supplier of natural liquefied gas and palm oil.

The currency was the worst-performing Asian currency so far this year due to falling commodity prices and a corruption scandal allegations that have linked Prime Minister Najib Razak to indebted state fund 1Malaysia Development Berhad.

Official efforts to stabilise the ringgit slashed the country’s international reserves to below the $100 billion mark,
as of July 31, boosting doubts over abilities to defend the worst-performing Asian currency this year.

But Malaysian central bank Governor Zeti Akhtar Aziz said it was not a cause for worry.

“We’ve seen it decrease before and there’s no issue to be concerned because that’s what the reserves are there for, to
represent a buffer to adjust during such periods,” she told reporters.

A senior Malaysian bank trader in Kuala Lumpur said the authority may allow the ringgit to weaken further amid “a global currency war” unless its depreciation speed is too fast.

Earlier on Thursday, Kazakhstan introduced a freely floating exchange rate, forcing its currency to lose more than a quarter of its value. Tumbling global crude prices hit the oil producing central Asian country.

Reuters

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