Asian currencies : Dovish Fed minutes lift ringgit to near 2 month-high, rupiah jumps 3.5%

Asian currencies : Dovish Fed minutes lift ringgit to near 2 month-high, rupiah jumps 3.5%

KUALA LUMPUR (NewsRise) — Malaysia’s ringgit rose to its highest in nearly two months on Friday and looks set to post its biggest weekly gain in 17 years as minutes of Federal Reserve’s September meeting reinforced hopes that the U.S. central bank will prefer to keep interest rates near zero for a while longer. A jump in crude oil prices also helped sentiment for the currency.

   Minutes from the September 16-17 meeting revealed that policymakers remained uneasy with low inflation and discussed at length the possibility of China-led slowdown weighing on U.S.

   The ringgit jumped over 3% to 4.1150, its highest level in almost two months. For the week, ringgit is up 6.8%, its biggest weekly gain since September 1998. For the year though, the currency is down 17.6% and continues to be the Asia’s worst performer against the greenback.

    Strong stocks, better-than-expected August trade data, receding chances of a Federal Reserve rate hike in 2015 and a resurgence oil and palm prices have turned the tide in favor of the ringgit and outclassed concerns arising from a slowing economy and a political uncertainty centering around Prime Minister Najib Razak’s alleged financial links to debt-ridden state investment fund 1 Malaysia Development Bhd.

    “This is probably a short-term thing,” said DBS Bank’s senior currency economist Philip Wee. “The market is still unwinding some positions” taken in anticipation of Federal Reserve raising rates and the “rapid move is something that has taken a lot of people by surprise.”

    Many analysts expect the ringgit to weaken again by year-end, with DBS’ Wee forecasting the unit at 4.3400 while Maybank estimates it at 4.3500.

   The dovish Federal Reserve minutes and capital inflows also bolstered other South East Asian currencies also, led by an over 3.5% rally in Indonesian rupiah.

   The rupiah is the second worst performing Asian currency this year, after the ringgit, having fallen 8% so far in 2015. The rupiah advanced almost 9% this week. The Philippine peso and the Thai baht rose by 0.40% and 0.48%. The Singapore dollar rallied by 0.38%.

   Other Asian currencies rallied too, with the Korean won climbing by 0.1% and the Taiwan dollar gaining 0.22%.

   The benchmark stock index KLCI rose by 1.04% to 1709.73, its highest level since August 6.   

   “The sustained gains in the ringgit were due to another jump in oil prices and upbeat sentiment,” said Maybank Investment Bank in a report.

   Crude oil prices rose overnight to its highest level in 3 months, extending its weekly gain to more than 10%. In Asia trading, crude prices edged 2% higher to $50.43 a barrel, boosting the currency of the net oil exporting nation that gets about 22% of its revenue from oil shipments.

     Still, multiple probes on 1MDB will continue to weigh on investors’ sentiment in the weeks ahead, analysts said. Weak commodity prices and the persistent political uncertainty have prompted foreigners to sell more than $4 billion worth of Malaysian shares so far this year, that have dragged the ringgit to the lowest levels since 1998.

      “Perhaps some of the Asian currencies may continue to see a breather” thanks to rebound in commodity prices and delay in Fed rate hike but “fundamentally the concerns remain,” said Maybank Investment Bank’s senior FX analyst Christopher Wong.

Asian currencies : Dovish Fed minutes lift ringgit to near 2 month-high, rupiah jumps 3.5%