EM currencies to hurt as dollar strengthens


EMERGING-MARKETS (EM) currencies are likely to be exposed to downside losses amid the strengthening of the US dollar, along with the escalating trade spat between the US and China.

The US Federal Reserve (Fed) held its interest rate at between 1.75% and 2% last Wednesday, but said it will likely raise the rate in September and December.

According to ForexTime Ltd research analyst Lukman Otunuga, EM currencies will remain under pressure as President Donald Trump’s latest threat to impose a 25% US tariff on US$200 billion (RM816.57 billion) worth of Chinese imports may spark risk aversion.

“The move will ultimately punish the assets and currencies in EMs. The Chinese yuan, ringgit, Singapore dollar and many other EM currencies have been treated without mercy by an appreciating dollar.

“More pain could be in store for EMs if today’s US jobs report beats estimates,” he said in a report last Friday.

Rakuten Trade Sdn Bhd research VP Vincent Lau said the ringgit will continue to face headwinds on concerns over US-China tariff hikes and the strengthening dollar.

“To a certain extent, it does affect in a sense that the dollar is outpacing most of the currencies and the fund outflow would be the evidence of that. And the ringgit has been tracking the yuan as well and (the yuan) has been weakening due to trade tension.

“I think, for now, the ringgit is much likely depending on the yuan….Unless oil picks up, that will give some support to the ringgit, the onus is on the yuan,” he told The Malaysian Reserve. Among the regional currencies, Lau said Malaysia is among the best performers.

“We have done a lot better than other regional currencies as we are supported by crude oil price that has been cushioning our ringgit.

“However, investors are under slight pressure with the stronger dollar and there is nothing much we can do apart from holding on to the fundamentals that are supporting the ringgit,” he said.

Otunuga said the stronger greenback was heavily influenced by the Fed’s hawkish policy statement in reinforcing market expectations of higher US interest rates later this year.

He said the US jobs review report for July could be an external factor for the dollar as it disclosed an insight into the health of the US labour markets. “Markets expect the US economy to have gained 191 thousand jobs in July, with average earnings up by 0.3%, while the unemployment rate is projected to remain steady at 4%,” he said.

Otunuga said wage growth will remain the main focus as signs of wage growth accelerating may fuel speculation of rising inflationary pressures.

“Expectations over an interest-rate hike in September could receive a boost if the US jobs report meets or exceeds market forecast.

“Technical traders will continue to closely observe how prices behave around the 95.00 level. A solid daily close above this stubborn resistance could encourage an incline towards 95.50,” he said.

Meanwhile, AmBank Group Research noted that the ringgit is expected to trade within its support level of 4.0698 and 4.0722, with the resistance level between 4.0828 and 4.0864.

In its AmBankFXDaily note last Friday, it said the ringgit fell 0.25% to 4.0765 against the dollar, while Bursa Malaysia’s main index saw a net foreign outflow of RM123.7 million with the local bourse closing 0.57% lower at 1,778.13.

“The ringgit gained against regional currencies like Singapore dollar by 0.1% to 2.9827, rupiah by 0.03% to 3,552.58 and baht by 0.12% to 8.1638, but weakened against peso by 0.11% to 13.0248,” it said.