The Malaysian ringgit led gains among emerging Asian currencies on Wednesday after Fitch Ratings maintained the country's sovereign ratings, erasing concern about a possible downgrade because of state fund 1MDB's debt problems. The South Korean won edged down as disappointing exports and weak factory activity pointed to a continuing slowdown in Asia's fourth-largest economy.
Fitch maintained Malaysia's long-term foreign currency issuer default rating at A- and local currency at A, with the outlook revised to stable from negative. The overnight move led investors to cut bearish bets on the ringgit in offshore non-deliverable forwards markets on Tuesday. The spot ringgit rose as much as 1.2 percent to 3.7270 per dollar, its strongest since June 22, in the local market.
Other Malaysian assets also rose. Kuala Lumpur stocks jumped 1.8 percent, while the 10-year bond yield slid to 3.984 percent, its lowest since June 4. "Positioning in long USD/MYR is high, so it will take more than one day for people to get out of the trade and strengthen MYR," said Sean Yokota, head of Asia strategy for Scandinavian bank SEB in Singapore, referring to the dollar/ringgit pair. The Malaysian currency has been the second-worst-performing Asian currency so far this year, in part due to worries about a downgrade. Still, the ringgit's rally is unlikely to last long, analysts said.
"On a fundamental basis, we see more pressure on the ringgit in the near term. This reflects our expectation for the current account to deteriorate in 2Q and 3Q, before some improvement in 4Q, reflecting the lagged impact of oil price moves," said Michael Wan, an economist for Credit Suisse, in a research note. Malaysia is a net oil exporter. "Domestic outflows remain large and could partly reflect payment of short-term external debt by banks," Wan said. The Malaysian ringgit, like other regional currencies, is also suffereing from expectations the US Federal Reserve will raise interest rates later this year, analysts said.
Asian economies are also slowing, with China's factory activity contracting for the fourth straight month in June. Reflecting the caution, the ringgit pared some of its early gains. The spot rate has a chart resistance at 3.7270, the 23.6 percent Fibonacci retracement of its depreciation from April to June, analysts said. Most emerging Asian currencies slid in the first half as rises in US borrowing costs are expected to undermine the attractiveness of higher yields in the region. The ringgit and the Indonesian rupiah led the losses.
"In the second half, the dollar is expected to resume an appreciation path and hurt Asian currencies as the Fed will raise interest rates in September," said Jeong My-young, Samsung Futures' research head in Seoul.
WON The won slid after data showing South Korea's exports in June fell 1.8 percent from a year earlier, the sixth consecutive drop. It compared with a forecast of a 1.0 percent loss. Manufacturing activity also shrank last month for the fourth straight month and at the fastest pace in nearly three years, a private survey showed. However, the South Korean currency pared most of its earlier losses on demand from exporters for settlements. Samsung Heavy Industries Co Ltd said it had won a 5.3 trillion won ($4.8 billion) order, which is expected to push up demand for the won.

Copyright Reuters, 2015

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