Ringgit leads Asia FX losses

The Malaysian ringgit hit a 10-month low on Thursday with increasing fears of capital controls, while most other emerging Asian currencies eased ahead of US Federal Reserve Chair Janet Yellen's testimony later in the day. China's yuan bucked the trend in regional currencies despite a weaker central bank guidance rate as large local banks bought the currency in an apparent effort to curb its slump.
Spot ringgit lost 0.9 percent to 4.3850 per dollar, its weakest since January 20. Prices of most Malaysian government bonds slid with the 10-year yield at 4.221 percent, the highest since January 11. That came after the Malaysian central bank demanded foreign banks to make a written commitment to stop trading offshore non-deliverable forwards in its latest move to protect a weakening currency, banking sources said. "Investors grew more concerned over BNM tightening trading rules. We cannot rule out the possibility of capital controls, although we don't need to worry about that for now," said Qi Gao, a FX strategist with Scotiabank in Singapore, referring to Bank Negara Malaysia.
"Continued dollar strength triggered capital exodus too. If Yellen sounds hawkish tonight, the ringgit's weakness will accelerate." The ringgit could weaken past 4.40 per dollar and head to 4.50 by the year-end, he added. Investors were closely waiting for Yellen's testimony to see any clues on Fed's interest rate policy as inflation is seen rising in the wake of Donald Trump's victory in the US president election.
Philadelphia Federal Reserve President Patrick Harker said on Wednesday he favoured raising rates and that the US central bank might have to hike more aggressively if the incoming Trump administration enacts a fiscal stimulus. Among Asian currencies, the South Korean won hit a near five-month low on equity outflows. The Singapore dollar hovered around a 9-1/2-month trough as disappointing October exports data raised risks of a recession and the odds for monetary policy easing.
The won lost 0.8 percent to 1,178.5 per dollar, its weakest since June 28. Foreign investors were set to extend their selling spree in the main stock market to a fifth straight session. South Korean bonds are also seen vulnerable to outflows, investors said.
"We are more cautious on the Korean won and expect the Korean yield curve to steepen given our expectations for rate cuts in Korea to remain while the longer end could be pushed higher with global rates and increased likelihood of bond supply," said Wan Howe Chung, global asset manager Amundi's head of Asian Fixed Income in Singapore.