Asian currencies slip

Asian currencies edged lower on Monday, with analysts wary of the risk that US dollar strength could return in coming months as the Federal Reserve considers raising US interest rates. Most Asian currencies lost steam after many of them set multi-month highs last week, when they rallied as the Fed turned less hawkish in its expectations for interest rate rises in 2016.
The Fed's policy statement and interest rate projections unveiled last Wednesday provided temporary relief for emerging Asian currencies, said Sim Moh Siong, FX strategist for Bank of Singapore. "For now there's bit of relief. We perhaps could see a bit of extension in the carry trades," Sim said, referring to trades in which investors sell lower-yielding currencies to finance investment in higher-yielding currencies and assets.
"But come June, if the improving picture in the US holds, then I think the market will start to worry again about Fed rate hikes and what this means for Asian currencies," he added. Traders said a drop in global oil prices weighed on the Malaysian ringgit. Buying of the US dollar by interbank speculators dented the Singapore dollar. Although the Indonesian rupiah retreated, its losses were limited by dollar-selling by foreign players.
The Singapore dollar could take its cues from data on the consumer price index (CPI) and core CPI for February due on Wednesday, and industrial production data on Thursday. In addition, the Singapore government is due to unveil its 2016 budget on Thursday. While the budget is unlikely to have any major impact on the Singapore dollar, one detail to watch is the estimated size of the "fiscal impulse", or the degree of fiscal support for the economy, said Michael Wan, an economist for Credit Suisse.
If the impulse were to turn negative, it may increase the onus on monetary policy to support growth, he added. "If you get a budget that is very clearly... negative for growth this year, then it would increase the probability of some easing by the central bank," he said. "That's not our expectation," Wan said, adding that the government's fiscal stance in the 2016 fiscal year is likely to be supportive of growth, but probably less so than last year. Most analysts in a Reuters poll published in early March said their baseline expectation was for the MAS to keep policy unchanged at its semiannual policy review in April, barring risks such as a sharper slowdown in China.