Indonesian rupiah and Malaysian ringgit stage strong rebound

An employee counts Indonesian rupiah banknotes at a money changer’s office in Jakarta. The rupiah had risen 7% over two days to 13,700 per dollar yesterday.ReutersSingapore/JakartaAsia’s worst performing currencies, the Indonesian rupiah and Malaysian ringgit, rallied strongly to multi-week highs yesterday, helped by the previous day’s intervention by Indonesian authorities, robust Malaysian data and a heavy liquidation of positions. By close of Asian trading, the ringgit had risen nearly 5% against the dollar to levels around 4.16 per dollar. The rupiah had risen 7% over two days to 13,700 per dollar. On September 29, both currencies had fallen to more than 17 years lows, striking levels unseen since the Asian financial crisis. “Rupiah and ringgit rebounded the most because they are more oversold than other currencies in the region,” said Heng Koon How, senior currency strategist at Credit Suisse Private Bank and Wealth Management in Singapore. A Singapore-based senior currency strategist at Credit Suisse. Heng said there were two reasons for the broad recovery in emerging Asian currencies, namely the rebound in oil prices and market expectations for the first US interest rate rise in years being pushed out after last week’s weak jobs data. Malaysia’s stock market too was among top gainers in the region yesterday as a jump in oil prices propped up refiners and mining stocks. US crude oil rose more than $1 to $49.64 per barrel. Besides the hope this rally in crude oil will push up prices for Malaysia’s exports of liquified natural gas, the ringgit also enjoyed a reprieve from the past weeks of relentless selling pressure after data showed a big jump in the August trade surplus. Even after the rally, the ringgit is down 16% this year. While Malaysia’s economic outlook looks better on the back of the oil price recovery, improved exports and the Trans-Pacific trade deal, Prime Minister Najib Razak’s political prospects remained mired in the scandal over allegations of graft and mismanagement at indebted state fund 1Malaysia Development Berhad (1MDB). “More such sizable trade surpluses could help investors conclude that the FX weakness was beginning to have a salutary impact on trade, suggesting perhaps that the currency weakness was overdone,” Siddharth Mathur, head of emerging Asia strategy at Citi, said. Mathur however said investors would still be looking to sell the ringgit on rallies until the political situation improved and thin trading volumes in the spot market meant there could be volatility and large moves in either direction. Malaysia’s royal rulers weighed in on the controversy on Tuesday, with a strongly worded statement. The sultans of nine states and governors of the remaining four said the government’s failure to give convincing answers on 1MDB may have resulted in a “crisis of confidence” and asked for the government to quickly conclude investigations and take appropriate action against those implicated, the Bernama news agency reported. Indonesia’s rupiah has mainly been ground down by worries foreigners who hold more than a third of its high-yielding government bonds will pull their money out as the Federal Reserve starts raising rates. The central bank, Bank Indonesia, has announced measures to contain the weakness in the currency, which at its weakest levels earlier this month was at lows last seen during the Asian financial crisis. Traders suspected those measures, particularly its plan to supply dollars in the forward markets, were behind the rupiah’s recovery this week. Bank Indonesia’s deputy governor Mirza Adityaswara said on Tuesday that intervention would have helped improve the supply of dollars but he denied intervening on Wednesday. Both central banks in Malaysia and Indonesia have been conscious of their precarious currency reserves positions and spot market dollar-selling interventions have been rare. Data yesterday showed Indonesia’s reserves were down to $101.7bn at the end of September, having shed nearly $14bn since they peaked in February. Malaysia’s reserves were down to $93.3bn at the end of September, falling $2bn in the second half of the month, and $34bn less than they were a year earlier.