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Kuala Lumpur - Emerging-market currencies fell for a third day amid a resurgent dollar after Federal Reserve officials indicated a June interest-rate increase is still possible.
Fed Bank of Atlanta President Dennis Lockhart said a US rate hike next month was “a real option” and came against the backdrop of tepid global growth, which has sparked a renewed selloff in equities. Malaysia’s ringgit slumped as Brent crude struggled to hold $45 a barrel after sliding in the past two days, damping the outlook for the oil exporter.
Shares in Jakarta added to losses along with the rupiah after first-quarter gross domestic product data missed forecasts.
South Korea’s won fell the most in four months as a gauge of the dollar rose from its lowest level in a year on Lockhart’s comments. The futures market shows only 12% odds for a move higher in US rates next month, with Friday’s jobs report a key indicator to determine the odds.
“Since we had a pretty good trend in dollar weakness, people have been short dollars and long emerging-market Asia, so they’re getting squeezed out as it’s moving the other way,” said Sean Yokota, the head of Asia strategy at Skandinaviska Enskilda Banken in Singapore.
“People are also squaring off positions ahead of payrolls on Friday. They’re just reducing risk.”
Currencies
The MSCI Emerging Markets Currency Index fell 0.5% as of 08:15 and is down 1.2% so far this week. It broke its 20-day moving average, a sign of further weakness. The ringgit retreated as much as 1.5% to 3.9885 per dollar, its lowest level since March 29.
The won declined 1.2% and the Thai baht 0.6%. Indonesia’s rupiah dropped 0.3% after the GDP figures.
1Malaysia Development Bhd., the state-owned investment company that defaulted on a $1.75bn bond last week, is asking investors to hold off any request for early repayment on its Islamic debt, according to a person familiar with the matter.
1MDB has submitted a request to the trustee of $1.8bn of sukuk for a waiver on the "acceleration process" for the bonds, the person said, asking not to be identified because the information isn’t public.
In the Philippines, the peso weakened beyond 47 per dollar, a level breached this week for the first time since early March. Presidential elections on May 9 will see a new leader emerge as Benigno Aquino’s six-year term expires.
In a country once known as Asia’s "sick man," the nation of 101 million people has earned World Bank praise as the continent’s "rising tiger" under Aquino, posting average six-year growth of 6.2%, the fastest since the 1970s.
The Bloomberg Dollar Spot Index climbed 0.2% after rising 0.7% on Tuesday. The Fed’s San Francisco President John Williams said he would support raising rates at the next meeting, provided the economy stayed on track.
Stocks
The MSCI Emerging Markets Index of shares dropped for a fourth day and was down 0.7%, trimming its advance this year to 2.6%. It took out the 50-day moving average. Materials and industrial stocks led the losses as the Bloomberg Commodity Index slipped 0.1% after Tuesday’s 1.4% slide.
Indonesia’s Jakarta Composite Index fell 0.9% and was headed for its lowest close since Febraury 26. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong dropped 0.8%, poised for its first three-day decline in a month.
PetroChina retreated 1.2% and China Petroleum & Chemical dropped 2.6%. Zijin Mining slid the most in three weeks as gold prices added to losses. The Shanghai Composite Index reversed a decline and was up 0.1%.
“The comments by some Fed officials have triggered more fear of a US rate increase,” said Tawatchai Asawapornchai, deputy managing director at Bangkok-based ASL Securities.
“This fear will affect sentiment for emerging markets. The comments come at the time of great concern about global economic growth.”
Bonds
Indonesian 10-year government bonds fell, halting a two-day gain. The yield rose six basis points to 7.75%, the highest in a month. Thai notes rose, sending the yield two basis points lower to 1.80%.
