The Malaysian ringgit and Indonesian rupiah touched 17-year lows on Sept 29, pummelled by persistent concern about the state of China’s economy, uncertainty over the US Federal Reserve’s schedule for normalising rates and lingering weak global growth.
The ringgit fell to a low of 4.465 against the US dollar, its lowest level since January 1998, according to Thomson Reuters data. Against the Singapore dollar, the ringgit touched a new low of 3.12 during the day. The Singapore dollar had also touched a six-year low of $1.4335 against the greenback earlier in the day.
Separately, the rupiah fell to its lowest level since July 1998, touching a trough of 14,730 at one point during the day.
Why are the currencies falling?
“Asian currencies as a block remain constrained by slowing growth, export contraction, a weak inflation outlook and increasingly dovish central banks across the region,” writes Heng Koon How, senior currency strategist at Credit Suisse, in a Sept 29 note.
In Malaysia, concerns are mounting over debt issues at the 1Malaysia Development Berhad state investment firm. Meanwhile, at about US$95 billion, the country’s foreign exchange reserves “remain too low for comfort”.
And even though the Malaysian government has announced a RM20 billion initiative towards investing in local blue chip equities, investor sentiment has so far remained negative.
In September alone, the ringgit has fallen further from 4.25 to 4.40 against the USD. Year to date, the currency has lost a quarter of its value. Consequently, “some long-term value has indeed started to emerge for the ringgit. However, the overwhelmingly bearish cyclical drivers continue to depress the currency,” writes Heng.
The strategist estimates that the RM could weaken further to 4.50 against the greenback by year end.
Things aren’t looking any better for the Indonesian rupiah outlook. For one thing, Indonesia’s foreign exchange reserves are now also in danger of falling below US$100 billion, having contracted to about US$103 billion as at mid-September.
Meanwhile, news that the Indonesian government is planning to borrow about US$4 billion from the World Bank and Asia Development Bank to fund its dwindling foreign exchange reserves and cover its budget deficit has also pummelled investor sentiment.
Across the month, the rupiah fell from 14,100 to 14,700 against the USD. “We now expect more rupiah weakness beyond 15,000 against the USD [by year-end],” writes Heng.
Still, Heng concedes that some value has begun to emerge for Asean currencies amid the sell-off in recent weeks. Valuations have started to improve given that the negative technical momentum appears to be fading for some Asean currencies, he writes.
For now though, Heng is advising his clients to stay short on emerging market currencies, given that the currencies “are not cheap enough to buy” at current levels owing to their fundamentals remaining “too negative.”
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The ringgit fell to a low of 4.465 against the US dollar, its lowest level since January 1998, according to Thomson Reuters data. Against the Singapore dollar, the ringgit touched a new low of 3.12 during the day. The Singapore dollar had also touched a six-year low of $1.4335 against the greenback earlier in the day.
Separately, the rupiah fell to its lowest level since July 1998, touching a trough of 14,730 at one point during the day.
Why are the currencies falling?
“Asian currencies as a block remain constrained by slowing growth, export contraction, a weak inflation outlook and increasingly dovish central banks across the region,” writes Heng Koon How, senior currency strategist at Credit Suisse, in a Sept 29 note.
In Malaysia, concerns are mounting over debt issues at the 1Malaysia Development Berhad state investment firm. Meanwhile, at about US$95 billion, the country’s foreign exchange reserves “remain too low for comfort”.
And even though the Malaysian government has announced a RM20 billion initiative towards investing in local blue chip equities, investor sentiment has so far remained negative.
In September alone, the ringgit has fallen further from 4.25 to 4.40 against the USD. Year to date, the currency has lost a quarter of its value. Consequently, “some long-term value has indeed started to emerge for the ringgit. However, the overwhelmingly bearish cyclical drivers continue to depress the currency,” writes Heng.
The strategist estimates that the RM could weaken further to 4.50 against the greenback by year end.
Things aren’t looking any better for the Indonesian rupiah outlook. For one thing, Indonesia’s foreign exchange reserves are now also in danger of falling below US$100 billion, having contracted to about US$103 billion as at mid-September.
Meanwhile, news that the Indonesian government is planning to borrow about US$4 billion from the World Bank and Asia Development Bank to fund its dwindling foreign exchange reserves and cover its budget deficit has also pummelled investor sentiment.
Across the month, the rupiah fell from 14,100 to 14,700 against the USD. “We now expect more rupiah weakness beyond 15,000 against the USD [by year-end],” writes Heng.
Still, Heng concedes that some value has begun to emerge for Asean currencies amid the sell-off in recent weeks. Valuations have started to improve given that the negative technical momentum appears to be fading for some Asean currencies, he writes.
For now though, Heng is advising his clients to stay short on emerging market currencies, given that the currencies “are not cheap enough to buy” at current levels owing to their fundamentals remaining “too negative.”
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
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