Most emerging Asian currencies rose on Friday to post weekly gains on growing hopes for further monetary stimulus from Europe and Japan, while oil prices extended a rebound. The Malaysian ringgit touched a near three-week high in thin trading as underlying concerns over the country's falling oil and gas revenues were offset by the central bank's decision to add liquidity, lifting local stocks and bond prices.
European Central Bank President Mario Draghi said on Thursday fading growth and inflation prospects will force the central bank to review its policy stance in March, a strong signal that more monetary stimulus could be coming within months. In addition, the Bank of Japan is "taking a serious look" at expanding its monetary easing measures, the Nikkei newspaper reported.
"The ECB and BOJ gave presents to market. That may cause the Fed to take a dovish stance next week," said Yuna Park, currency and bond analyst, Dongbu Securities in Seoul. The US Federal Reserve starts a two-day policy meeting on Tuesday. "Risky assets including Asian currencies will rally, but only until the next week. It's better to sell them on rallies amid little confidence yet as we don't know what will happen in China and Hong Kong."
Hong Kong's dollar and stocks tumbled earlier this week on worries about capital outflows amid a slowdown in China's economy. The ringgit rose as much as 1.7 percent to 4.2985 per dollar, its strongest since January 4, helping the currency post a 2.0 percent gain so far this week.
"At current levels of above 4.30 vs USD, MYR in deemed to be undervalued, particularly given a still supportive macro metrics eg a current account surplus, diversified growth drivers, and capital market depth," Commerzbank said in a note. Malaysia's central bank on Thursday unexpectedly cut the statuary reserve requirement ratio to 3.5 percent from 4.0 percent, effective February 1, while leaving its key interest rate steady to prevent capital outflows.
Kuala Lumpur stocks advanced more than 1 percent and government bond prices rallied. The 10-year bond yield fell to 3.936 percent, its lowest since July 24, while the five-year yield slid to 3.344 percent, the lowest since October 2013. The South Korean won advanced 1.1 percent for the week, ending the Friday local market at 1,200.1 per dollar. A break of 1,203 prompted traders to scramble for the worst-performing Asian currency so far this year.
Thailand's baht and Singapore's dollar have risen 0.7 percent so far this week. The Taiwan dollar has climbed 0.6 percent throughout this week and the Indonesian rupiah was up 0.3 percent. Still, doubts over long-term sustainability of gains in regional currencies remained, given a slowing global economy. "Asia FX will continue to be weighed down by a toxic mix of CNY weakness, regional export contraction and weak inflation trajectory," said Heng Koon How, senior currency strategist for Credit Suisse private banking and wealth management in Singapore, referring to the Chinese yuan. The renminbi has stabilised thanks to cocktail of support measures by Chinese authorities, but traders remain pessimistic about its outlook as the world's second-largest economy continues to lose steam.