October’s rally in Southeast Asian exchange rates has slammed into reverse amid prospects for higher US interest rates and a Chinese-induced currency war.
The Malaysian ringgit has given up much of its gains since peaking on Oct 9, while the Thai baht and the Singapore dollar are set for a second week of losses. Indonesia’s rupiah led a surge in emerging-market currencies this month before losing momentum in the last couple of weeks and falling 1.2% on Thursday after the Federal Reserve indicated it might raise borrowing costs in December.
The economy of China, the major export market for most Southeast Asian nations, is relying on interest-rate cuts and a weaker yuan to sustain momentum, risking a currency war as countries safeguard their competitiveness. The downtrend is bad news for the prices of commodities like oil and coal on which the economies of Malaysia and Indonesia depend.
“Exports continue to contract and the full impact of the growth slowdown in China has yet to be fully felt,” said Khoon Goh, a Singapore-based senior currency strategist at Australia & New Zealand Banking Group, the top forecaster for emerging Asian currencies in the last quarter in Bloomberg rankings. “We’re set for a continuation of the weakening trend of Southeast Asian currencies.”
Currency Forecasts
The rupiah has advanced 7.6% in October and the ringgit and baht are up 2.2%. That compares with respective month-to-date gains of 9.2%, 6.6% and 3.4% on Oct 15. ANZ forecasts the ringgit will drop a further 1.2% by year-end, the baht will fall 3.8% and the rupiah will lose 5.2%.
October’s exchange-rate advances have spilled over into local-currency sovereign bonds, with Indonesian notes returning 5.9% in the past month, followed by 1.6% for Malaysian securities and 1.5% for Thai paper, Bloomberg indexes show. Those gains are at risk of reversing in Indonesia and Malaysia due to the relatively high level of foreign ownership of their debt, according to Nomura Holdings Inc.
“The pressure on the currency markets will continue to weigh on Indonesia and Malaysia,” said Vivek Rajpal, a rates strategist at Nomura in Singapore. “With the vulnerability still high in Malaysia and Indonesia, I would be careful in owning” the two nation’s government bonds, he said.
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The Malaysian ringgit has given up much of its gains since peaking on Oct 9, while the Thai baht and the Singapore dollar are set for a second week of losses. Indonesia’s rupiah led a surge in emerging-market currencies this month before losing momentum in the last couple of weeks and falling 1.2% on Thursday after the Federal Reserve indicated it might raise borrowing costs in December.
The economy of China, the major export market for most Southeast Asian nations, is relying on interest-rate cuts and a weaker yuan to sustain momentum, risking a currency war as countries safeguard their competitiveness. The downtrend is bad news for the prices of commodities like oil and coal on which the economies of Malaysia and Indonesia depend.
“Exports continue to contract and the full impact of the growth slowdown in China has yet to be fully felt,” said Khoon Goh, a Singapore-based senior currency strategist at Australia & New Zealand Banking Group, the top forecaster for emerging Asian currencies in the last quarter in Bloomberg rankings. “We’re set for a continuation of the weakening trend of Southeast Asian currencies.”
Currency Forecasts
The rupiah has advanced 7.6% in October and the ringgit and baht are up 2.2%. That compares with respective month-to-date gains of 9.2%, 6.6% and 3.4% on Oct 15. ANZ forecasts the ringgit will drop a further 1.2% by year-end, the baht will fall 3.8% and the rupiah will lose 5.2%.
October’s exchange-rate advances have spilled over into local-currency sovereign bonds, with Indonesian notes returning 5.9% in the past month, followed by 1.6% for Malaysian securities and 1.5% for Thai paper, Bloomberg indexes show. Those gains are at risk of reversing in Indonesia and Malaysia due to the relatively high level of foreign ownership of their debt, according to Nomura Holdings Inc.
“The pressure on the currency markets will continue to weigh on Indonesia and Malaysia,” said Vivek Rajpal, a rates strategist at Nomura in Singapore. “With the vulnerability still high in Malaysia and Indonesia, I would be careful in owning” the two nation’s government bonds, he said.
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