The Malaysian ringgit rose on Thursday as some investors hoped the government may deliver measures to improve the fiscal deficit, while Indonesia's rupiah led gains among emerging Asian currencies on a survey showing solid growth in Chinese manufacturing. The ringgit advanced as much as 0.7 percent to 3.1460 per dollar on demand from hedge funds and as other investors reduced bearish bets on the Malaysian currency.
Prime Minister Najib Razak will trim the government's hefty subsidy bill and likely announce a new consumption tax on Friday as he delivers a budget seen as crucial to ward off a possible credit downgrade and reassure investors over the Southeast Asian country's fast-growing debt burden.
But the 2014 budget is unlikely to make drastic cuts to subsidies that take up about a fifth of government spending, or include deeper reforms such as reducing a bloated, but politically influential, civil service. The ringgit lost 0.2 percent against the dollar in the first three days of the week, underperforming most emerging Asian currencies, according to Thomson Reuters data. Some analysts and traders said the Malaysian currency priced in some hopes that the fiscal deficit issues would be addressed.
"Over the past month, politics in Malaysia and the US appeared to have switched places," said Philip Wee, a currency strategist at DBS Bank in Singapore. "After the UMNO elections, Malaysia appears to be getting its act together, and is now better positioned to address the fiscal concerns raised by Fitch," Wee said, referring to the internal elections of the ruling United Malays National Organisation last weekend. The United States, on the other hand, is kicking the can down the road on the debt ceiling deadline again because of divisive politics on Capitol Hill, he added.
Najib aims to trim the fiscal gap from 4.5 percent of gross domestic product in 2012 to 4 percent in 2013 and 3.5 percent in 2014 before returning to a surplus by around 2020. Maybank said the ringgit may strengthen to 3.0770, if Najib's announcement on Friday meets market expectations such as the introduction of a Goods and Services Tax (GST) of 4 percent in 2015. If not, the Malaysian currency is seen weakening to 3.2500, it added in a client note.
For now, the ringgit faces chart resistance at its 200-day moving average of 3.1403. The rupiah rose as much as 0.7 percent to 11,188 per dollar, its strongest since September 10, on capital inflows. Indonesian stocks rose 0.5 percent, outperforming most regional bourses. Most government bond yields fell with 10-year yields down at 7.151 percent, the lowest since July 1.
Month-end dollar demand, which had put pressure on the rupiah, eased, traders said. "Most companies got dollars when it was above 11,300," said a Jakarta-based trader. The rupiah is seen heading to 11,150, he added. The Singapore dollar gained on a stronger-than-expected Chinese manufacturing performance in October.
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