Ringgit falls to near 10-month low on capital control fears

SINGAPORE: The ringgit hit a near 10-month low yesterday with increasing fears of capital controls, while most other emerging Asian currencies eased ahead of US Federal Reserve Chair Janet Yellen’s testimony later in the day.
China’s yuan bucked the trend in regional currencies despite a weaker central bank guidance rate as large local banks bought the currency in an apparent effort to curb its slump.
The ringgit extended losses by more than 1% to hit a near 10-month low as concerns grew over potential capital controls, hurting government bonds. The ringgit fell 1.1% to 4.3920 per dollar, its weakest since Jan 20. Malaysia’s government bond prices slid with the 10-year yield hitting 4.227%, the highest since Jan 11.
That came after Bank Negara Malaysia (BNM), the central bank, demanded foreign banks make a written commitment to stop trading offshore non-deliverable forwards in its latest move to protect a weakening currency, banking sources said.
“Investors grew more concerned over BNM tightening trading rules. We cannot rule out the possibility of capital controls, although we don’t need to worry about that for now,” said Qi Gao, a FX strategist with Scotiabank here.
“Continued dollar strength triggered capital exodus too. If Yellen sounds hawkish tonight, the ringgit’s weakness will accelerate.”
The ringgit could weaken past 4.40 per dollar and head to 4.50 by the year-end, he added.
Investors were closely waiting for Yellen’s testimony to see any clues on Fed’s interest rate policy as inflation is seen rising in the wake of Donald Trump’s victory in the US president election.
Philadelphia Federal Reserve president Patrick Harker said on Wednesday he favoured raising rates and that the US central bank might have to raise more aggressively if the incoming Trump administration enacts a fiscal stimulus.
Among other Asian currencies, South Korea’s won hit a near five-month low on equity outflows. The won lost 0.8% to 1,178.5 per dollar, its weakest since June 28.
Foreign investors were set to extend their selling spree in the main stock market to a fifth straight session.
South Korean bonds are also seen vulnerable to outflows, investors said.
The Singapore dollar hovered around a 9½-month trough as disappointing October exports data raised risks of a recession and the odds for monetary policy easing. – Reuters