Ringgit, peso ease before rate decisions

SINGAPORE: The Malaysian ringgit and the Philippine peso eased on Thursday ahead of rate decisions by their central banks later in the day and as most of its peers continue to suffer from profit-taking along with commodities and dollar-short covering.

Emerging Asian currencies may see more corrections especially before US job data due on Friday as investors are still holding short-dollar positions, although the long-term view on the regionals remains bullish, analysts and dealers say.

Investors may use signs of global economic slowdown as an excuse to liquidate overstretched positions in the regional currencies further, dimming their bright outlook in short-term, they added.

‘More questions may be asked about the global outlook and that could cause more risk aversion. Asian currencies should still strengthen in the medium-term but the outlook has got more uncertain in my view,’ said Jonathan Cavenagh, currency strategist at Westpac in Singapore.

Emerging Asian currencies are unlikely to rise this month as much as in April, experiencing more two-way auctions rather than one-way bets he added.

The regional currencies enjoyed healthy gains last month with the ringgit hitting a 14-year high against the dollar as investors perceived tacit approval from the central banks as a tool against inflation, while relatively strong economic growth and ample liquidity supported.

The recent falls in emerging Asian currencies are merely due to position adjustments and appetite for the currencies stayed strong in the medium term, analysts said.

‘It is the overall positioning of commodities, commodity linked currencies, and Asian currencies, where are very stretched,’ Andy Ji, Asian currency strategist and economist at Commonwealth Bank of Australia in Singapore.

‘Again, bear in mind that even in the medium term when we expect some more strength in these riskier assets, we are really looking at the USD weakness. So it will be patchy.’

Despite the temporary corrections in emerging Asian currencies, some of them such as the Singapore dollar and the ringgit are expected to keep outperforming their peers, creating investment opportunities within emerging Asia, Standard Chartered said.

StanChart advised selling rupee/rupiah and buying ringgit/peso, saying emerging Asian currencies may experience short-term correction from late second quarter.

The Indonesian rupiah is the third-best performer among emerging Asian currencies having risen 5.2 percent against the dollar so far this year. The ringgit is the No. 5 with a 3.2 percent gain versus the greenback.

RINGGIT

The ringgit shed 0.4 percent against the dollar, weakening past a resistance line of 2.98 per dollar, as investors covered short positions before a rate decision and amid weak commodity prices.

The Malaysian currency may weaken further, probably to 3.00 and 3.01, the 38.2 percent and the 50 percent retracement levels of March-May strengthening trend respectively, as investors are looking to take profits more, although it may find some if the central bank raises interest rates.

Investors are split on the central bank's decision with eight out of 15 economists expecting rates to stay unchanged at 2.75 percent, according to a Reuters poll.

‘If BNM increases rates, it should be positive to MYR, but now the focus is on profit-taking from positions, like those who are long commodities, long Asia and long equities,’ said a Kuala Lumpur-based dealer.

But investors are still looking to buy the ringgit on dips and levels around 3.00 would be good to bid it, he added.

With the dollar-short cover, dollar/ringgit's 14-day Relative Strength index (RSI) rose to 39.92, indicating the pair got out of an oversold territory.

PESO

The peso eased on dollar-short covers and before the central bank's rate decision.

But the Philippine currency is poised for a renewed gain if the central bank takes stronger steps after higher-than-expected inflation data, with some traders eyeing a more aggressive rate hike of 50 basis points (bps) or more hawkish comments. Before the inflation data, the central bank had been expected to lift rates 25 bps.

‘Hopes for a hike are keeping USD/PHP offered on upticks. Since inflation came out higher than expected, it's now possible for more hikes,’ said a European bank dealer in MAFP

Thio Chin Loo, a currency strategist with BNP Paribas in Singapore, said the peso may strengthen towards Monday's high near 42.6 if BSP lifts rates 50 bps.

But a US bank strategist in Singapore said the peso was unlikely to strengthen much given the profit-taking in emerging Asian currencies along with the broad slide in commodities and risky assets.