Malaysian ringgit bank notes of different denominations are seen in this file picture illustration taken in Kuala Lumpur August 20, 2013. The Malaysian ringgit hit a 16-year low on July 6, 2015 after reports linked the country’s prime minister to probes into alleged corruption, while most emerging Asian currencies slid as Greeks rejected austerity measures for bailout money. (Reuters Photo/Bazuki Muhammad)

Singapore. Malaysia’s central bank intervened for a third successive trading day on Tuesday to support the ringgit currency, traders said, as corruption allegations swirled round Prime Minister Najib Razak, raising doubts over his grip on power.

Thanks to Bank Negara’s damage limitation, the ringgit has lost only 0.8 percent since the political storm broke on Friday, but it has weakened past an old currency peg of 3.80 per dollar, fixed in September 1998 during the Asian financial crisis and scrapped in 2005.

The ringgit closed at 3.8060 on Tuesday, helped off a low of 3.8100 by the heaviest day for intervention so far as foreign investors sold Malaysian assets.

A scandal over the $11.6 billion of debt wracked up by state fund 1MDB had been bubbling for months, with Malaysia’s longest serving leader, former prime minister Mahathir Mohamed, making repeated calls for Najib to step down while asking where the money had gone.

But a Wall Street Journal report on Friday sent shockwaves through Malaysia and financial markets by alleging nearly $700 million was transferred into bank accounts believed to belong to Najib.

Reuters is unable to verify the report. Najib has denied taking any money from the debt-laden state fund or any other entity for personal gain.

“The political drama is unlikely to be fixed overnight. It will continue and put the ringgit under pressure,” said Lee Jin-yang, a macro analyst at Aberdeen Asset Management in Singapore.

“The ringgit is likely to face additional headwinds from broader US dollar strength and weak oil price as well,” Lee said.

He, like many other traders, did not see any quick reversal of fortunes for the ringgit.

The 3.8000 level remains a strong psychological reference point for Malaysians, even though the central bank brought the currency off the peg 10 years ago.

Technical analysts have a more dispassionate perspective, and they see the ringgit gathering chart support between 3.8000 and 3.8200 — marking the 38.2 percent Fibonacci retracement of its depreciation from 1978 to 1998.

If the support level is breached, the ringgit may weaken to 3.9060, the 50 percent retracement of its appreciation from 1998 to 2011, they said.

Political risk had remained a background factor until recently, but the ringgit was already weighed down by worries about the impact of weak global prices on its oil and gas earnings.

It is Asia’s weakest performing currency this year, having fallen 8.1 percent against the dollar.

Yet last week, Fitch Ratings somewhat unexpectedly opted to switch its outlook on the rating to “stable” from “negative”.

Fitch had been the most pessimistic of the three major international credit ratings agencies on Malaysia, and there had been fears of a possible downgrade.

Instead, Fitch said its improved outlook “reflects the strong economic fundamentals and the sound financial position of the country”.

Moody’s Investors Service, said on Monday that 1MDB did not pose a systemic risk to Malaysia’s economy, banks, or government finances.

The government’s fiscal deficit is improving. Inflation is benign, and economic growth, despite slower exports, was a respectable 5.6 percent in the first quarter.

Moreover, the worries about the weak crude price have been overdone, as Malaysia sells very little oil, but is the world’s second largest exporter of gas, and gas prices have come down less steeply.

But the country and its currency could suffer from investors’ growing aversion to risk as the Greek debt crisis rumbles on and China’s stock market tumbles.

Foreigners are major investors in Malaysian government ringgit bonds. They sold a net 14 billion ringgit ($3.7 billion) worth of the government bonds in the first six months of the year, according to central bank data showed.

If that escalates, the central bank may have to intervene more intensively in the currency market, traders said.

Reuters

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Singapore. Indonesia’s rupiah hit a near 17-year low on Thursday, leading losses among emerging Asian currencies, as the dollar rose to a fresh 11-year high ahead of the launch of quantitative easing by the European Central Bank.

The rupiah weakened past the psychological support level of 13,000 per dollar for the first time since the 1997-98 Asian financial crisis.

Indonesia’s senior central bank deputy governor said onshore corporate dollar demand was contributing to the weakness and a current account deficit of 3 percent of gross domestic product this year would be acceptable.

The Malaysian ringgit hit a six-year low as offshore funds sold the currency.

The dollar advanced to its strongest since September 2003 against a basket of six major currencies. The ECB is expected to announce details of its planned 1.1 billion euro ($1.2 billion) bond-buying programme later in the day.

The greenback found further support from a stronger-than-expected U.S. service sector indicator and as a private jobs number for February was seen positive for an official non-farm payrolls data due on Friday.

Solid jobs data is likely to bolster expectations that the U.S. Federal Reserve may raise interest rates earlier.

By contrast, more Asian central banks are easing monetary policy to tackle slowing growth and deflationary pressures, hurting their currencies.

“The latest monetary policy softening by the PBOC, RBI, and BI may continue to send a fairly unambiguous signal to USD bulls, with yield considerations being put on the back burner in the short term and as broad USD dynamics take a hold,” said Emmanuel Ng, a foreign exchange strategist with OCBC Bank, in a client note.

The Reserve Bank of India on Wednesday delivered another unexpected rate cut in its second inter-meeting this year. The People’s Bank of China on Saturday slashed interest rates, while Bank Indonesia surprised investors by lowering borrowing costs on Feb. 17.

Economists see more rate cuts in all three countries in coming quarters.

Rupiah   

The rupiah fell as much as 0.4 percent to 13,025 per dollar, its weakest since August 1998.

The Indonesian currency slid in most non-deliverable forwards markets with the three-month NDFs pricing in a 13 percent annualised depreciation in the spot. Offshore real money investors sold the rupiah in NDFs markets.

The official Jakarta Interbank Spot Dollar Rate, which the central bank introduced in 2013 to manage exchange rate fluctuations, was fixed at 13,022 rupiah per dollar, the weakest since the launch.

The central bank was spotted intervening to support spot rupiah around 13,030, traders said.

The government bond lost ground. The 10-year bond yield  rose to 7.320 percent from Wednesday’s 7.146 percent.

Foreign portfolio investors are showing signs of losing faith in the country’s ability to support the rupiah.

Ringgit   

The ringgit slid 0.3 percent to 3.6580 per dollar, its weakest since March 2009.

Offshore real money accounts and hedge funds sold the currency in one-month NDFs in overnight market.

Spot ringgit pared some of earlier losses on caution over possible intervention by the central bank to support the currency.

Investors awaited the central bank’s monetary policy meeting later in the day. Bank Negara is expected to keep its overnight policy interest rate unchanged at 3.25 percent, a Reuters poll showed.

Won   

The won eased as the yen’s weakness kept investors wary of potential intervention by the foreign exchange authorities to stem the South Korean currency’s strength versus the Japanese unit.     Still, exporters were lined up to buy the won on dips, especially when it was weaker than 1,100 per dollar, traders said.
Foreign investors turned net buyers of South Korean stocks in February, while they continued to purchase local bonds in the past two months, Financial Supervisory Service data showed earlier.

Reuters

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