No respite for regional currencies, commodity prices

Long queues at moneychangers in Change Alley on June 10 with the ringgit weakening. It has depreciated about 6 per cent against the Singdollar since Jan 1. Some analysts expect it to weaken further.
Long queues at moneychangers in Change Alley on June 10 with the ringgit weakening. It has depreciated about 6 per cent against the Singdollar since Jan 1. Some analysts expect it to weaken further.ST PHOTO: WONG KWAI CHOW

Weak China data, rising oil supply, likely US interest rate hike hurting markets: Analysts

Weak economic data from China and the looming United States Federal Reserve interest rate hike have hit commodity prices and regional currencies in recent weeks .

Renewed selling of already depressed commodities came after a key China economic indicator took a sharp turn for the worse.

Last month's Caixin China purchasing managers' index, a measure of factory activity, shocked observers by sinking to a two-year low of 47.8. The data, released on Monday, reinforced fears that China's stock market rout was a sign of deeper structural issues in the economy.

Slowing growth in the world's No.2 economy has led to a downturn in commodities markets, hitting the currencies of key commodities exporters such as Australia.

The Australian dollar weakened below parity against the Singapore dollar in end-July for the first time since the 2009 global financial crisis. One Australian dollar could buy 99.77 Singapore cents on July 29.

SAFE-HAVEN CURRENCY

Given the growing volatility and weakness in various Asian regional currencies, the Singapore dollar is now increasingly seen as a safe-haven currency across Asia.

MR HENG KOON HOW, Credit Suisse senior currency strategist

It has since rebounded slightly. One Australian dollar was buying $1.016 Singdollars yesterday.

The outlook for oil also remains lacklustre. A combination of weaker demand and rising supply, particularly from a renaissance in US production, has put the squeeze on crude prices in the past 12 months.

The price of benchmark Brent crude declined further over the past month, from US$62 a barrel at the start of July to about US$50 a barrel yesterday. Analysts warn that high global production and a tepid economic outlook in Asia mean further falls are likely.

Meanwhile, market watchers expect US jobs data, due at the end of the week, to be robust, which will firm up prospects that the Federal Reserve will begin raising interest rates next month. This will likely spur outflows from emerging markets and spells bad news for Asian currencies, analysts said.

Credit Suisse senior currency strategist Heng Koon How said Asian currencies are "increasingly being afflicted by weak macro-economic backdrops, ranging from disappointingly slow growth and persistently low inflation to significant export contraction".

The confluence of a strengthening US dollar and weak domestic drivers is likely to further weaken Asian currencies into 2016, he said.

Mr Heng expects even more pronounced weakness ahead for the Korean won, Malaysian ringgit and Indonesian rupiah.

The ringgit, in particular, has been hit by a toxic blend: expectations the Fed will hike interest rates later this year, sliding prices of key petroleum exports and a corruption scandal linked to the premier.

The ringgit has depreciated about 6 per cent against the Singdollar since Jan 1, hitting levels not seen since at least 1981. One Singdollar could buy about RM2.80 yesterday, with some analysts tipping it will weaken further. Meanwhile, the rupiah has weakened 0.8 per cent against the greenback since mid-July, while the won has depreciated 1.4 per cent over the same period.

The Singdollar has not been spared and was $1.376 to the greenback yesterday, a 1.6 per cent depreciation from about $1.354 in mid-July, weaker than $1.339 in June.

But any weakness will likely be more moderate and modest compared with the pace of depreciation in currencies of key regional trade partners across Asia, said Mr Heng.

"Given the growing volatility and weakness in various Asian regional currencies, the Singapore dollar is now increasingly seen as a safe-haven currency across Asia," he noted.

This is because despite near-zero inflation and slowing growth here, the Singdollar remains backed by a robust current account surplus, disciplined fiscal regimen, strong foreign reserves coverage and a stable sovereign credit rating, he added.

A version of this article appeared in the print edition of The Straits Times on August 05, 2015, with the headline 'No respite for regional currencies, commodity prices'. Print Edition | Subscribe