The New Zealand dollar has fallen slightly against the US dollar Tuesday, trading at 66.70 US cents at 0750 in Wellington from 66.79 US cents at 1700 yesterday. The trade-weighted index was at 72.71 points from 72.82.
The local currency was at 94.46 Australian cents from 94.85 and was at 51.54 British pence from 51.63.
The kiwi was at 59.60 euro cents from 59.85, at 74.45 Japanese yen from 74.53 and at 4.4897 Chinese yuan from 4.4938.
The Australian dollar has dipped slightly, buying 71.70 US cents from 71.69 US cents on Monday.
On Monday morning, the dollar was buying 71.71 US cents from 71.61 US cents on Friday.
Last Friday morning, the local currency has fallen, buying 71.25 US cents from 71.61 US cents on Thursday.
It had flatlined near a six-week peak as losses on Asian share markets chilled risk sentiment somewhat.
The Australian dollar has fallen Wednesday, buying 71.23 US cents from 71.44 US cents on Tuesday.
The local currency rose on Tuesday morning, buying 71.24 US cents from 70.99 US cents on Monday. It was at 71.07 US cents Monday morning, dropping from 71.25 US cents on Friday.
The Australian dollar has risen slightly over the weekend to 70.42 US cents, up from 70.22 US cents on Friday.
The Aussie dollar also trades at 62.67 euro cents, 54.20 British pence, $1.03 New Zealand dollars, 78.24 Japanese Yen, and 4.733 Chinese Renminbi.
Australian markets are also expected to be affected by Monday’s public holiday in Victoria, South Australia, Tasmania and the ACT.
CommSec chief economist Craig James says its no surprise that after the losses in the US, there would be similar declines in our own market on Monday.
“US investors are trying to mull up the state of the economy – job figures were much weaker than expected but the question is whether this is just a one off type development. And housing stats were much firmer than expected,” he told AAP.
“So that data was more mixed than anything.”
He said investors could expect Monday to be a little softer in terms of volume, and potentially, growth because of the public holiday.
He said because of that, no major economic data had been released.
But what everyone is waiting for is a development in the US-China trade dispute.
“Without new information, we are effectively in a holding pattern.”
The Australian dollar has fallen against its US counterpart Tuesday, buying 70.91 US cents from Monday’s 71.11 US cents. The local currency is at 79.39 Japanese yen, from 79.23 ; 62.40 euro cents, from 62.36 ; 53.57 British pence, from 53.48 and 104.16 NZ cents, from 104.04. Last Friday, the local currency has been given a lift after a survey of Chinese manufacturing surprised on the high side.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI), released on Friday, rose to 49.9 in February, from 48.3 in January, topping expectations. It was enough to hoist the Aussie dollar up to 71.05 US cents from a low of 70.90 US cents, though it was still down 0.4 per cent on the week. The US currency rose overnight when data showed US economic growth beat forecasts in the December quarter, supported by strength in household consumption.
In contrast, Australian households have been reining in spending amid sluggish wage growth and sliding home prices. CoreLogic property data out on Friday showed home prices across the country fell another 0.7 per cent in February, though that was a small improvement from January’s 1 per cent drop. The Reserve Bank of Australia recently warned that a further significant fall in prices could undermine household wealth and spending.
The weakness in consumption is one reason analysts suspect figures for GDP out next week will indicate annual growth slowed to about 2.6 per cent last quarter.
“We expect home price falls to double to 14 per cent, peak to trough, making a negative household wealth effect on consumption likely,” said UBS economist George Tharenou.
“We expect GDP to clearly slow to a below-trend 2.3 per cent in 2019, seeing unemployment rise and the RBA cut in November, with risk of earlier easing.”
Investors have already moved to price in the risk of a cut in interest rates this year, with futures implying about an 80 per cent probability of a quarter point easing in the 1.5 per cent cash rate. That in turn has pushed down Australian bond yields and fattened the premium offered by US debt. Yields on Australian 10-year bonds are now 56 basis points below those on US paper, compared with 36 basis points at the start of the year. Australian government bond futures dipped in line with Treasuries, with the three-year bond contract easing 3.5 ticks to 98.330 while the 10-year contract fell 5 ticks to 97.8550.
The dollar was marginally weaker on Monday, as increasing expectations of a U.S.-Sino trade deal led investors to shift away from the safety of the greenback into riskier assets. Both the United States and China reported progress in five days of negotiations in Beijing last week, although the White House said much work remains to be done to force changes in Chinese trade behaviour.
Negotiations will continue next week in Washington as investors hope for an end to the trade war between the world’s two largest economies.
“Trade is the big focus for the markets…with talks shifting from Beijing to Washington, we could get more news flow,” said Michael McCarthy, chief markets strategist at CMC Markets.
“I expect the euro to remain under pressure this week while dollar/yen could also fall if we see risk-aversion based on negative trade news flow.”
In Asia, the yen was marginally higher versus the greenback at 110.53.
The Aussie gained 0.1 percent to $0.7144, after gaining 0.48 percent on Friday on hopes of a trade breakthrough between the United States and China. The kiwi dollar also gained around 0.1 percent on the dollar to $0.6868.
U.S.-China trade tensions have kept markets highly volatile since last year.
U.S. duties on $200 billion worth of Chinese imports are set to rise from 10 percent to 25 percent if no deal is reached by March 1 to address U.S. demands that China curb forced technology transfers and better enforce intellectual property rights.
The dollar index, a gauge of its value versus six major peers was marginally lower at 96.85. The index has gained 1.4 percent so far this month despite weaker-than-expected U.S. data as well as a cautious Federal Reserve which is widely expected to keep rates steady this year due to a slowdown in growth and muted inflation.
The dollar index has gained mainly because of the euro , which has around 58 percent weightage in the index.
The single currency was flat at $1.1292 in early Asian trade and has had two straight weeks of losses. Traders are betting on a weaker euro in the coming months as they expect the European Central Bank to keep its monetary policy accommodative due to low growth in the common area, tepid inflation and political uncertainties.
On Friday, Benoit Coeure, a member of the European Central Bank’s executive board, said a new round of cheap multi-year loans to banks was possible. Coeure added that the euro zone’s recent economic slowdown is more pronounced than earlier expected, suggesting the path of inflation will also be more shallow.
The ECB will next meet on March 7 and policymakers are widely expected to slash growth and inflation projections as the euro zone is suffering its biggest slowdown in half a decade.
Elsewhere, sterling was up by 0.1 percent to $1.2903, building on its gains from Friday.
The pound rallied 0.6 percent on Friday, helped by reports of some hedge fund buying, a conciliatory tone on Brexit from the Irish foreign minister and stronger-than-expected British retail sales data.
The dollar eased versus most of its peers on Monday as investors turned their attention to this week’s Federal Reserve policy meeting, with traders wagering policymakers will signal a pause in their tightening cycle. The Federal Open Market Committee meets between Jan 29-30, and Chairman Jerome Powell is widely expected to acknowledge growing risks to the US economy as global momentum weakens.
The dollar fell 0.2% versus the offshore yuan to 6.7406. The rally in the yuan also fuelled a bounce in the Australian dollar, which gained 0.18% versus the dollar to $0.7195. Kiwi dollar strengthened by 0.3% to $0.6859.
“The general direction for the dollar is still down and markets will be taking cues from the FOMC this week,” said Sim Moh Siong, currency strategist at Bank of Singapore.
“The Fed will most likely keep rates steady this year given the state of economic growth outside the US”
The dollar index, a gauge of its value versus six major peers was marginally lower at 95.74, after falling 0.8% on Friday.
A deal to reopen the US government for now after a prolonged shutdown also reduced investor demand for the safety of the greenback.
‘The re-opening of Federal government after one-month shutdown fuelled ‘risk on’ rally in the US equities and slashed demand for safe-haven currency like USD, leading to sharp decline of the dollar index last Friday,” said Margaret Yang, markets analyst at CMC Markets.
Over the past two months or so, Powell and several other Fed policymakers have taken a more cautious approach on further monetary tightening, leaving the dollar underpowered after it enjoyed a boost from the Fed’s four rate increases last year.
Traders are bearish on the dollar for 2019.
Amid a weakening global economy and US-Sino trade tensions, the US central bank is widely expected to hold rates steady this year to avoid hurting growth at home. Interest rate futures markets are pricing in no rate hikes for 2019.
Investors are also anxiously waiting news from high-level US-China trade talks on Tuesday and Wednesday to see if the world’s largest economies can reach a compromise that will end their trade war. President Donald Trump has threatened to hike tariffs on Chinese goods if there is no significant progress in the negotiations.
The yen added 0.2% in early Asian trade at 109.34.
The dollar has gained around 1.2% on the yen over the last two weeks. Not helping the yen was the Bank of Japan’s downgrade of its inflation forecasts last week when it also maintained its accommodative monetary policy, as widely expected.
Moreover, Japanese investors have been net buyers of foreign bonds over the last few weeks, stoking demand for dollars. This likely explains why the safe-haven yen has not appreciated during this period even though risks of a global economic slowdown have rattled investor sentiment.
The euro was marginally higher at $1.1411.
The single currency managed to cling on to a 0.4 percent gain made last week despite the European Central Bank downgrading its growth forecasts for the near term.
Growth data out of Europe’s economic powerhouses such as Germany and France has been weaker-than-expected and analysts expect the ECB to remain dovish for an extended period.
Traders believe Europe’s slowdown and a dovish ECB are priced into the euro, which has traded in a $1.12-$1.16 range over the last three months.
Sterling was marginally lower, fetching $1.3193.
Cable gained 2.5% last week after a report in the Sun newspaper that Northern Ireland’s Democratic Unionist Party had privately decided to offer conditional backing for British Prime Minister Theresa May’s Brexit deal this week.
However, Ireland’s Deputy Prime Minister Simon Coveney said on Sunday the backstop was already a compromise drawn up to meet May’s negotiating red lines, and the EU and Ireland were united in the view it “was not going to change”.
Analyst expect sterling to remain volatile. Britain is set to leave the European Union on March 29, but the country’s members of parliament remain far from agreeing a divorce deal.
The ringgit is expected to face a challenging upcoming week as the market uncertainty over trade tensions and a slowdown in the global economy encourage investors to remain risk-off. FXTM Research Global Head of Currency Strategy Jameel Ahmad said that the local unit may face the risk of falling below RM4.15 against the greenback next week.
“The local currency has actually performed reasonably well this week during a period of heightened market uncertainty due to concerns over a global economic slowdown in 2019, and I actually would have expected the currency to fall lower due to investor reluctance to invest in emerging markets when there is significant market uncertainty,” he said.
He said the ringgit and its emerging market peers across the globe face significant downside risks heading into the next trading week, as global financial markets continue to be gripped by market turmoil.
“The first few days of the new trading year have not been kind to financial markets, with a number of global stocks selling off and a “flash crash” in the currency markets leading to losses in a number of currencies including the British pound, Australian dollar and Turkish lira while the Japanese yen surged across the board,” he added.
Although the ringgit and its Asian peers got away from the flash crash in the market unscathed, he said the prolonged risk-off environment that is hurting risk appetite is encouraging expectations that emerging markets are at risk to another round of selling off.
“I would keep a close eye on whether the ringgit falls below 4.15 next week, because this will raise market expectations that the currency of Malaysia will gradually return to the 4.20 levels over the coming weeks,” he said.
For the week just ended, the ringgit closed mostly lower against the US dollar with market sentiment moved by global economic uncertainties and weak Purchasing Managers’ Index (PMI) data released early this week.
On a Friday-to-Friday basis, the local note strengthened to 4.1340/1370 from 4.1500/1550 against the greenback.
It went down against the Singapore dollar to 3.0357/0395 from 3.0336/0384 but improved against the British pound to 5.2378/2432 versus 5.2468/2548.
Against the euro, the ringgit jumped to 4.7144/7199 from 4.7488/7550, but eased versus the Japanese yen to 3.8260/8298 from 3.7597/7653.
The U.S. recent interest hike might result in a high demand for U.S. dollars in Vietnam, weakening the local currency further, experts say. The U.S. Federal Reserve Wednesday raised its interest rates for the fourth time this year to 2.25-2.5 percent. The Fed has projected two more hikes next year.
Every time the Fed raises its interest rate, the interest rate for the greenback will increase at international banks, economist Nguyen Tri Hieu said.
He said that with the interest rate on dollar accounts at Vietnamese banks at zero percent currently, investors might look to deposit their money in international banks for at least 2 percent.
“This could result in a bleeding of dollars which could lead to a lower supply of the greenback in Vietnam.”
Hieu added that the smaller supply of dollars will increase its exchange rate against the dong.
The Fed interest rate increase will pressure the USD-VND exchange rate, as the dollar strengthens further over the dong.
Local banks will push their interest rates up to prevent their customers from exchanging local currency to the U.S. dollar, he said.
According to Ngo Dang Khoa, HSBC country head of global markets, another risk is that the U.S. dollar is forecast to be stronger next year, making a weaker dong a high possibility.
Economist Hieu said that a strong dollar will also increase its exchange rate against the Chinese yuan, which will create even greater pressure on the dong.
If the dong value remains unchanged, it will become stronger against the yuan, and Chinese exports to Vietnam could increase, resulting in a higher trade deficit than Vietnam has already has with the country, he said.
However, other observers have said that as the fourth hike has been predicted, the Vietnamese market has prepared itself for the new interest rate and short-term impacts could be mitigated.
Khoa with HSBC also said that there won’t be major responses from the Vietnam market following this hike, especially the forex market, as investors have already expected the interest rate to be raised.
The local finance market won’t have to bear major impacts because of the raise, as the State Bank of Vietnam has recently taken measures to control the exchange rate and interest rate to stabilize the market, he said.
The dong has fallen by some 1.57 percent, against the greenback since the beginning of the year. The dong hit 23,419 to the dollar on Friday.
Prime Minister Nguyen Xuan Phuc had said in August that the devaluation of the dong needs to be kept within a 2-percent band this year compared with the end of last year.
The State Bank of Vietnam has licensed South Korea’s Kookmin Bank to open a branch in Hanoi, the government said on Tuesday. The branch has a chartered capital of $35 million and the contract runs for 99 years, the government said in a statement.
South Korea is the largest source of foreign direct investment in Vietnam and the Southeast Asian country’s second largest trading partner.
The official exchange rate between Vietnamese dong and U.S. dollar reached its highest this year Wednesday, and experts said the dong could depreciate further. The State Bank of Vietnam set a central exchange rate of VND22,757 on Wednesday, the sixth time the rate has gone up in the last two weeks.
The dong has fallen by VND352, or 1.57 percent, against the greenback since the beginning of the year.
The dollar’s value increased at commercial banks. At 3p.m. Wednesday, Vietcombank sold the dollar for VND23,350, VND15 higher than Tuesday.
Vietinbank also sold its dollar for VND23,350, VND17 higher than Tuesday, while BIDV sold it at VND23,355, VND25 higher.
The dollar also inched up on the free market. At 11.30 a.m. Wednesday, it was selling for VND23,360-23,410, VND10-20 higher than on Tuesday.
Economist Nguyen Tri Hieu said that the reason for the hike was high demand for dollars toward the end of the year as businesses often import large amounts of materials needed for manufacturing.
The ongoing U.S.-China trade war continues to exert exchange rate pressures, despite the U.S. announcing a 90-day halt on additional tariffs on Chinese goods starting next year, as there is no certainty that tensions will decline, he said.
“There is a high possibility that the dong’s value will continue to fall this year,” Hieu said.
Hieu said that the government should also devaluate the dong against the Chinese yuan so that the trade deficit between Vietnam and China can be reduced.
Vietnam relies heavily on China for materials and equipment for its labor-intensive manufacturing sector.
As the yuan’s value has fallen by 9 percent to the dollar since the beginning of this year, some experts have said that the dong should be devaluated even more to avoid impacts a cheaper yuan. Cheap made-in-China goods could be imported in large quantities to Vietnam and compete with domestic products, they said.
But economist Tran Dinh Thien said that the dong should be kept at a balanced rate between the U.S. dollar and the Chinese yuan. A 2-3 percent band a year is acceptable, he added.
A stronger dollar will benefit exporters, but will also create stronger pressure on inflation and interest rates which will increase business costs in a country with high imports and public debt, Thien said at a recent conference.
He added that the fluctuation of the dong should be controlled to help local companies conduct their business with greater certainty.
The government doesn’t want businesses to suffer shocks, he said.
Prime Minister Nguyen Xuan Phuc had said in August that the devaluation of the dong needs to be kept within a 2-percent band this year compared with the end of last year.
The recent increase in U.S. interest rate will generate pressure on the Vietnamese dong and make inflation target hard to meet, experts warn.
The U.S. Federal Reserve lifted interest rates for the third time this year by a quarter of a percentage point to a range of 2.00 percent to 2.25 percent on Wednesday, foreseeing another rate hike in December.
Economist Nguyen Tri Hieu said this increase will pressure the USD-VND exchange rate, as the dollar strengthens further over the dong.
Local banks will push their interest rates up to prevent their customers from exchanging local currency to the U.S. dollar, he said.
Imports will be priced higher in VND, pushing the consumer price index (CPI) higher, Hieu said.
“It is very likely that CPI will surpass the country’s goal of 4 percent for the year,” he added.
Echoing Hieu, HSBC country head of global markets Ngo Dang Khoa said that the U.S. interest rate moves will create challenges for Vietnam’s economy as the inflation rate is closely approaching the government’s limit.
The weakened VND can also lower capital flow from foreign investors as they might not be confident in making further investments, Khoa said.
It can also slow down the equitization (privatization) of state-owned enterprises as changes in the dong’s value will affect the stock market, he noted.
“For local businesses, higher interest rates will increase capital expenditures, which will have a direct impact on their profit.”
But Khoa said he believes there are also opportunities for Vietnam to increase exports to the U.S. as spending and demand for investment in the U.S. will rise with the new interest rate.
Between January and September this year, Vietnam’s GDP grew by 6.98, the highest nine-month growth rate in eight years. Inflation for this period was 3.57 percent, according to the General Statistics Office.
The value of the rupiah has stabilized in recent days as the domestic supply of dollars has increased due to inflows from returning investors and more exporters converting their earnings, Bank Indonesia Governor Perry Warjiyo said on Friday (21/09).
“The rupiah has stabilized and it tends to strengthen,” Perry said. “Many fund managers have begun to invest and allocate their portfolios to emerging markets. So what was going out has begun to return.”
The rupiah traded at 14,815 to the dollar at 1.05 p.m. in Jakarta on Friday, marginally stronger than Thursday’s closing.
Perry also said inflation is expected to stay benign this year despite the rupiah’s fall, saying the rate is seen near the lower end of Bank Indonesia’s 2.5 percent to 4.5 percent target range. The annual inflation rate stood at 3.20 percent in August.
Bank Indonesia has raised interest rates four times since mid-May to defend the rupiah, which fell to its weakest in 20 years amid wider emerging market selloffs. It will meet again next week to review monetary policy.
The U.S. dollar strengthened against the Vietnamese dong on Tuesday as the central bank upped its reference rate.
The State Bank of Vietnam (SBV) set its highest-ever reference rate for the greenback at VND22,686 on Tuesday, up VND10 from last Saturday.
Eximbank and Vietcombank were selling the U.S. dollar for VND23,350 at 10:29 a.m. Tuesday, up VND10 from last Saturday.
A recent report by the Ho Chi Minh City Securities Corporation (HSC) estimates that the SBV has sold about $2.5 billion in total since July, intervening to keep the exchange rate stable.
The report forecast that the U.S. dollar will continue to strengthen against the dong to reached VND23,500 in the upcoming months.
The SBV might sell $6-12 billion of its foreign exchange reserves by the end of this year, including the amount it has already sold, the HSC report said.
Experts have forecast the dollar to rise by 3 percent this year against the dong.
Vice President Jusuf Kalla said Indonesia must impose stricter measures to ensure that dollars earned from exports remain in the country for longer, amid the continuous depreciation of the rupiah, which has been among the worst performers in Asia this year.
The currency has weakened by 6.21 percent against the dollar so far this year, amid a global sell-off of emerging-market assets, triggered by higher US interest rates and a stronger greenback. A weaker rupiah has many negative effects on the nation’s economy, as it increases the cost of imports, while raising the interest burden on public- and private-sector foreign debt.
In a discussion in Jakarta on Thursday (02/08), Kalla criticized Indonesia’s existing free-floating foreign-exchange regime, which has made the country highly dependent on capital inflows, particularly in the short run. He highlighted the fact that under current laws, regulators are powerless to force exporters to keep their earnings onshore for longer.
“There needs to be stronger measures so that foreign-exchange earnings from exports can stay [in the country],” he said, adding that Indonesia adopted very loose foreign-exchange controls, especially in the aftermath of the 1998 Asian financial crisis.
The vice president cited as an example Thailand, which has implemented a strict foreign-exchange regime that requires export proceeds to stay in the country’s financial system for at least six months. He believes such a policy could help boost Indonesia’s supply of foreign exchange.
However, Bank Indonesia Governor Perry Warjiyo made it clear last month that the central bank has no intention to impose tougher regulations that would force exporters to keep their dollars in the country for longer. Under current laws, the monetary authority is independent from the executive.
The central bank has been using a mix of policies aimed at tightening its monetary policy. This includes raising its benchmark policy rate three times since mid-May to 5.25 percent and introducing new a benchmark interest rate in the country’s overnight interbank money market to boost the reliability of reference rates.
Biodiesel
Indonesia has been susceptible to capital outflows as it is one of a few emerging markets in Asia that run current-account deficits. The country’s financial markets are also still very shallow and lack product diversity, while on the other hand, the government runs a budget deficit, which adds to a greater reliance on foreign funds to help stimulate the economy.
The government has taken various measures within its jurisdiction to reduce the current-account deficit, including a policy that will make the use of biodiesel-blended fuels mandatory for vehicles and heavy machinery from Sept. 1. This program is expected could save billions of dollars in diesel imports.
Kalla also highlighted the government’s efforts to improve exports and reduce imports. He said the palm oil industry received particularly close scrutiny because it is the country’s greatest source of foreign exchange.
The European Parliament agreed in June to extend its deadline on phasing out the use of palm oil as biodiesel in the bloc to 2030 from 2021. This means biofuels from Indonesia, the world’s largest palm oil producer, will still enter the European market for the next 12 years, instead of three years as was the case under the previous deadline.
“We were forced to threaten European countries by saying we would stop buying Airbus. After that, their ambassadors came to clarify, so their policy to stop the use of palm oil is delayed until 2030,” Kalla said.
Lion Air, Indonesia’s largest low-cost carrier, ordered 234 aircraft worth $23.8 billion from France-based Airbus in 2013 – the biggest order in the aircraft producer’s history.