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Regional currencies strengthen against the US dollar

Publication Date : 05-02-2014

 

Southeast Asian currencies, including the Singapore dollar, have enjoyed what may prove to be a brief reprieve from their recent slide against the US dollar.

Weaker US economic data has prompted investors to cash out of the greenback, which had been on the up and up in recent months.

Regional currencies strengthened by between 0.3 per cent and 0.55 per cent on Tuesday after fresh data showed a slowdown in US factory activity last month.

The Singdollar was one of the region's better performers, advancing to a near three-week high of 1.2689 against the US dollar, strengthening 0.52 per cent from the previous day.

Other currencies also found support from government actions.

Traders said the Malaysian central bank likely intervened in the market to back the ringgit, enabling it to rise 0.55 per cent to 3.327 against the US dollar.

The Indonesian rupiah gained ground after investors bought into the currency ahead of Jakarta's plan to raise 10 trillion rupiah (US$820 million) in a bond auction on Wednesday.

That lifted the rupiah to 12,203 per US dollar, up from the 12,240 level it hit on Monday, its weakest value in a year.

The Thai baht, meanwhile, rose 0.48 per cent to 32.785 against the greenback on Tuesday.

Though uncertainty over the country's political woes remain, traders noted that Sunday's election passed without any major incident, with smaller anti-government crowds on the street.

Analysts said investors fled US markets in a knee-jerk reaction to the disappointing US data, which led to more than 2 per cent drops on both the Dow Jones Industrial Average and S&P 500 on Monday.

The US Institute for Supply Management's factory index fell to 51.3 last month, from 56.5 in December, and was also far weaker than market expectations for a reading of 56. A figure above 50 indicates expansion.

Even though Southeast Asia is a relatively safer haven and is expected to cope better than emerging markets elsewhere, experts do not expect the money to keep flowing to this part of the world.

Wu Mingze, currency strategist at forex trading firm Oanda, said: "This is just a short-term correction. The longer-term theme is that funds are leaving, everybody wants to go back to safer, developed markets."

He added that the Singapore dollar will do better than other regional currencies thanks to the country's status as a strong financial hub, which will still be attractive to investors.

The United States Federal Reserve's tapering of its massive bond-buying programme has been wreaking havoc on the currencies of emerging markets, as the era of cheap money nears its end.

Turkey's lira fell to a record low of 2.39 per US dollar last week, while South Africa's rand dropped to a five-year low of 11.25 against the greenback last week.

The US dollar also hit one-year highs against the ringgit, the rupiah and the baht in January.

Wu said: "It is between a rock and a hard place for emerging market currencies. If the US market recovers, the outflow of funds from emerging markets will continue.

"If the US markets continue to drop, concerns over the biggest economy in the world will affect global demand and sentiment."

 

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