The Malaysian ringgit hit a nine-year low and the Indonesian rupiah set a fresh 17-year low on Monday, after robust US jobs data bolstered expectations of an interest rate hike by the Federal Reserve before year-end. The dollar climbed broadly against Asian currencies after data on Friday showed US nonfarm payrolls increased 280,000 last month, the largest gain since December.
The prospect of US interest rates rising in coming months and a narrowing growth gap between developed and developing economies do not bode well for emerging market currencies in general, said Mitul Kotecha, head of Asia-Pacific FX strategy for Barclays in Singapore. "We still believe Asia outperforms relative to other emerging markets but at this point in time, it still looks like there's more downside to come in terms of the currencies," Kotecha said. The strong US jobs data was seen as bolstering the prospects for the Fed to raise interest rates in September and helped lift the benchmark US 10-year Treasury yield to an eight-month high on Friday. Such rises in US bond yields can erode the attractiveness of the relatively higher yields available in emerging Asian markets and act as a drag on their currencies.
Asian currencies also received little help from data showing that China's imports slid 17.6 percent in May from a year earlier, in a sign that domestic demand in the world's second-largest economy remains sluggish. Underscoring the weakness in Asian currencies, the Philippine peso fell to 45.15 versus the dollar at one point, matching a trough in November. A further drop in the peso would take it to its lowest level in more than a year.
The Thai baht last traded near 33.80 versus the dollar, after having fallen to 33.95 during US trading hours on Friday, its lowest level since September 2009, according to Thomson Reuters data. The ringgit fell below its March 2009 trough of 3.7370 versus the dollar - a key technical charts support level - and slid to as low as 3.7665, its lowest level since January 2006, according to Thomson Reuters data. The next major chart level for the ringgit lies at 3.8000, where the ringgit had been pegged against the dollar before it was refloated in 2005.
Malaysia had fixed the ringgit at 3.8 to the dollar during the 1997/98 Asian financial crisis. The fixed currency regime lasted until July 2005, when Malaysia abandoned the peg. While the ringgit could extend its losses in the near term if US and European bond yields rise further, its current levels may be attractive when viewed over the longer-term, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
"I think this is a buying opportunity for medium-term and longer-term investors. My sense is that the ringgit seems a bit oversold," Murata said. The robust US jobs data points to an improvement in the US economy and could be positive for Malaysia's trade balance, which is already in the black, Murata said. In addition, the Malaysian government has shown its intent to tackle the problems at state investment fund 1MDB, Murata added.
The rupiah set a 17-year low for the third straight trading session. It fell to as low as 13,380 against the dollar, its lowest level since August 1998, according to Thomson Reuters data. The official Jakarta Interbank Spot Dollar Rate, which the central bank introduced in 2013 to manage exchange rate fluctuations, was fixed at 13,360 rupiah per dollar, the weakest since the central bank introduced the rate in 2013. Last week, foreign funds sold a net $88.71 million in Indonesian equities but added a net 1.48 trillion rupiah to their outstanding holdings of Indonesian debt on June 1-4, analysts at Maybank said in a research note.
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