Ringgit leads Asia FX gains

Malaysia's ringgit hit a 3-1/2-month high on Friday, leading gains among emerging Asian currencies, on the Bank of Japan's surprise easing and higher oil prices. The Bank of Japan earlier added negative interest rates on central bank deposits to its massive asset-buying programme, stunning financial markets that expected no action or a moderate increase in asset purchases.
The move helped Asian equity markets extend gains, while the yen lost 2 percent. Such easing could help investors seek higher yields in emerging Asia, while the regional currencies may not fully benefit given a slowing global economy, some analysts said. Regional units gave up some of initial gains after the BoJ's decision, with the South Korean won briefly turning weaker. "The surprise BoJ move, along with expectations of the ECB's easing in March, will support risk assets and attract more carry trades into Asia," said Yuna Park, currency and bond analyst at Dongbu Securities in Seoul, referring to the European Central Bank.
"Still, that is not necessarily seen only positive to Asian currencies as such easing could spur other central banks in emerging markets to cut interest rates." South Korea's treasury bond futures rallied as foreign investors rushed to buy after the BoJ's move, although many of the analysts still see interest rates on hold for a prolonged period of time. Some of central banks in emerging Asia already eased monetary policies or injected money to support growth and inflation despite worries about capital outflows due to expectations of US interest rate hikes.
The People's Bank of China continued to pump massive amounts of short-term liquidity into markets. Malaysia's central bank last week cut the statutory reserve requirement ratio to add more liquidity. Bank Indonesia on January 14 cut interest rates. The ringgit jumped as much as 2.1 percent to 4.1200 per dollar, its strongest since October 15. Long-term foreign investors chased the currency as higher crude prices eased concerns over Malaysia's falling oil and gas revenues.
Global benchmark Brent oil futures moved nearly 6.5 percent higher so far this week on hopes of a deal among oil-producing countries to tackle a growing supply glut. So far this week, the ringgit has advanced 4.2 percent against the dollar, helping it report a more than 4 percent gain in January, according to Thomson Reuters data. The appreciation would be the largest monthly rise in four years, the data showed.
"There has been a wave of aggressive USD selling seen from real money and while traders had anticipated good demand on dips, the support levels quickly evaporated when oil prices continued firming overnight," said Stephen Innes, senior trader for OANDA in Singapore. "The downside (in dollar/ringgit) is looking very susceptible as the long USD/Asia liquidation continues," Innes said. Adding to support on the ringgit, the government on Thursday maintained this year's fiscal deficit target at 3.1 percent of gross domestic product, defying expectations of a wider gap.
The government's 10-year bond prices on Friday rose with the yield down to 3.857 percent, the lowest since May 6 2015. Most regional currencies rose on Friday to report weekly gains, although they were still on the course for monthly losses. The Taiwan dollar gained on exporter bids for month-end settlements, while foreign financial institutions bought the currency with local stocks up.
Still, caution grew over possible intervention by the central bank to curb further appreciation as data showed the island's economy grew in 2015 at the slowest pace since the global financial crisis. The won gained as South Korea's foreign exchange authorities were suspected of intervening to stem losses in the second-worst performing Asian currency so far this year. Exporters also bought it for month-end settlements. The Singapore dollar advanced on the Chinese yuan's stability. China's central bank fixed its daily guidance rates stronger over the past week.