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  • Dollar eases as focus shifts to Fed meeting

    Dollar eases as focus shifts to Fed meeting

    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.

  • Ringgit likely to trade in cautious mode this week

    Ringgit likely to trade in cautious mode this week

    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.

  • Higher Fed interest rate could weaken Vietnamese currency

    Higher Fed interest rate could weaken Vietnamese currency

    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.

  • South Korea’s Kookmin Bank licensed to open Vietnam branch

    South Korea’s Kookmin Bank licensed to open Vietnam branch

    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.

  • Vietnamese currency falls to new low, could go lower

    Vietnamese currency falls to new low, could go lower

    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.

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  • Asian currencies rise as dollar off despite higher U.S. inflation

    Asian currencies rise as dollar off despite higher U.S. inflation

    Asian currencies firmed on Thursday, boosted by heftier global risk appetites as the dollar slipped despite stronger-than-anticipated U.S. inflation and a rise in Treasury yields.

    Tracking a rally in Wall Street, Asian stocks brushed aside U.S. inflation data that showed that January core CPI posted the
    largest gain in a year, raising pressure on the Federal Reserve to be more aggressive in raising U.S. interest rates this year.

    The dollar index weakened to a near 2-week low, after the rebound in equities, evoking the idea that the greenback might be in a period of persistent weakness.

    “The dollar advanced against other currencies when US CPI inflation was released but pared the gains and weakened later as
    U.S. equities proved more resilient, with the VIX index pulling back further below 20,” said Qi Gao, FX strategist (EM Asia) at
    Scotiabank.

    “Continued risk appetite sent Asian currencies higher this morning, I think risk appetite will likely continue as synchronized global growth is expected to boost the EUR and JPY, while bolstering EM Asian currencies as long as risk appetite sustains.”

    The Malaysian ringgit led gains among regional currencies as it firmed 0.6%, while the Indian rupee strengthened 0.3%.

    The Philippine peso, the worst performing Asian currency in 2018, also rode on the positive sentiment to strengthen 0.3%, on track to end five-consecutive sessions of losses.

    The Singapore dollar firmed 0.1% after data showed that the city–state’s annual exports in January surged despite another decline in electronics shipments, helped by a jump in sales of petrochemical products.

    The Korean won, Chinese yuan and Taiwan dollar did not trade on Thursday, because of the Lunar New Year holiday.

    The rupiah strengthened 0.5%, even though Indonesia’s statistics bureau on Thursday said the country in January had a US$670 million trade deficit, while a Reuters poll had forecast a US$190 million surplus.

    The baht firmed 0.5% on Thursday.

    Thailand’s central bank left its benchmark interest rate unchanged on Wednesday, near record lows, saying it expects inflation to stay largely subdued even as Southeast Asia’s second-largest economy gains further momentum.

    The central bank said the economic outlook had improved on the back of strong global demand for its exports, but recovering
    domestic demand and inflation developments should be monitored.

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  • Ringgit marches higher against US dollar

    Ringgit marches higher against US dollar

    The ringgit marched higher against the US dollar today, appreciating by 59% since it was last seen in April 2016, said Oanda Head of Trading for Asia Pacific, Stephen Innes.

    At 6pm, the local note ended at 3.8840/8870 against the greenback from 3.9110/9140 on Wednesday.

    Innes said the ringgit touched the 3.8 level, rising 15% from its weakest point in early 2017.

    It strengthened against the US dollar as it continued its depreciation amid the increase on the overnight policy rate by 25 basis points to 3.25% by Bank Negara Malaysia today.

    He said the increase did not have much impact on the ringgit as the markets had fully priced in the move.

    “However, we think the market found itself a little oversold and with what amounted to be a dovish rate increase by BNM, traders booked profits.

    “If we consider that we could be entering extended cyclical downtrend on the US dollar, the ringgit could still rally below 3.80 level in near term,” he told Bernama.

    On another note, Innes also said that oil prices, which has come off their highs, would remain above the budget’s forecast and continue to support ringgit’s strength.

    The ringgit was traded mixed against a basket of major currencies.

    It rose against the Singapore dollar to 2.9746/9781 from Wednesday’s 2.9803/9832 and gained versus the yen to 3.5630/5661 from 3.5658/5695 yesterday.

    It declined against the euro to 4.8286/8327 from 4.8242/8295 on Wednesday and went down against the British pound to 5.5491/5537 from 5.5110/5168 yesterday.

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