Malaysia's ringgit on Thursday hit its strongest level in more than one week thanks to higher oil prices, while investors awaited unveiling of the country's 2017 budget on Friday. The Philippine peso touched a near one-month high on a budget surplus in August and after the local equity market on Wednesday saw the largest inflows in three weeks. Sentiment improved on hopes that President Rodrigo Duterte's foreign visits would create an inflow of business. He is in China this week.
The ringgit gained 0.5 percent to 4.1700 per dollar, its strongest since October 11, as a jump in crude prices eased concerns over Malaysia's oil and gas revenue. US crude prices on Wednesday hit a 15-month peak due to a drop in US stocks and an expectation of an Opec-led cut in production. Malaysian Prime Minister Najib Razak's 2017 budget, due on Friday afternoon, is expected to feature a raft of populist measures in a bid to assuage voters unhappy with his leadership and rising living costs.
That could support economic growth, but any widening of the fiscal deficit at a time the economy is cooling could risk downgrades to Malaysia's sovereign debt. "If the budget sticks to fiscal consolidation path, it will be positive for the ringgit," said Qi Gao, FX strategist for Scotiabank in Singapore. "But if that's a populist budget, it will spur bond outflows and undermine the ringgit ahead of a FOMC meeting in December," Gao said, referring to the Federal Open Market Committee. The Fed is expected to raise interest rates at the December meeting.
Most emerging Asian currencies took a breather ahead of a European Central Bank monetary policy meeting later in the day. The main focus is whether ECB President Mario Draghi will give any indications that the bank is poised to taper its bond purchase program. The ECB may defer until December any changes to its asset purchases, sources familiar with the discussion said last week.
"The ECB meeting and press conference will likely focus on the tone regarding tapering or extension of the QE," said Nordea Markets' chief analyst Amy Yuan Zhuang in Singapore, referring to quantitative easing. A tapering could reduce global liquidity, hurting investors' appetite for higher yields in emerging Asia. The peso rose 0.4 percent to 47.975 per dollar, its strongest since September 23.
The Philippine government had a budget surplus of 32.6 billion pesos in August, only the second monthly surplus this year, the government said earlier. That helped narrow the budget deficit so far this year. Foreign investors bought a net 1.07 billion peso ($22.29 million) of Manila stocks on Wednesday, the largest daily purchase since September 30, the Philippine Stock Exchange data showed, and domestic stocks jumped 2 percent that day.
The Philippine currency pared some of earlier gains as caution remained over Duterte's policies, especially his war on drugs, and anti-American outbursts, which have boosted fears of capital outflows. In September, the peso suffered its largest monthly loss in 16 years. The market is "positive" on the president's China trip, said a senior Philippine bank trader in Manila.