SINGAPORE – The Malaysian ringgit slumped to a 14-1/2 month low on Friday and many of its counterparts in Asia were on the back foot after the U.S. Federal Reserve surprised markets this week by signalling a faster pace of rate rises next year.
The ringgit fell to 4.4755 per dollar, its lowest level since late September 2015, when it touched a trough of 4.4770.
A drop past that nadir would take the Malaysian currency to its lowest level since January 1998, at the height of the Asian financial crisis.
The onshore Chinese yuan briefly hit a low of 6.9493 per dollar earlier on Friday, its weakest level since May 2008, but has since steadied as liquidity injections from authorities shored up confidence. Some traders also liquidated long-dollar positions ahead of the weekend, helping to prop up the yuan.
The Singapore dollar held steady, but remained within sight of a seven-year low of 1.4481 per U.S. dollar set on Thursday.
Most Asian currencies were on track for weekly losses, after the Fed raised interest rates for the first time in a year on Wednesday and signalled three hikes in 2017, up from around two flagged at its September meeting.
The Fed’s rate signal has spurred a renewed rise in U.S. bond yields, boosting the dollar and inflaming concerns about the risk of capital outflows from emerging markets.
While there have been signs of outflows from Asian equities markets after the Fed’s policy meeting, the amounts don’t seem to be huge, said Teppei Ino, analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.
“It’s not as if there has been any drastic worsening in the surrounding environment (for Asian currencies) over the past few days,” Ino said.
While the dollar might rise further against emerging Asian currencies in the next few weeks, one uncertainty further ahead is whether the U.S. economy can remain resilient if the dollar and bond yields continue to rise, Ino added.
Hong Kong’s overnight yuan borrowing rate edged down to 10.0 percent on Friday from a nearly two-week high of 11.76367 percent a day earlier. That was still well above levels around 2.9 percent at the end of November.
The interbank borrowing rate in the offshore yuan market has been elevated in the past few weeks, stirring speculation that the authorities are keeping funding conditions tight in order to discourage speculative positions against the yuan.
“I expect traders to take note of current funding costs,” said Stephen Innes, senior trader for FX broker OANDA in Singapore, adding that they might pare back their short positions in the offshore Chinese yuan as a result.
The offshore yuan was steady on the day at 6.9347 per dollar, having pulled up from a near 3-week low of 6.9500 set on Thursday.
Analysts say the Singapore dollar could drop further against its U.S. counterpart, since its nominal effective exchange rate (S$NEER) is still seen as having more room to fall within the central bank’s policy band.
In addition, some analysts say the central bank could ease its exchange-rate based policy next year.
“Lacklustre external demand and U.S. President-elect Donald Trump’s protectionist trade policy will weigh on Singapore’s exports and economic growth,” Qi Gao, FX strategist for Scotiabank, said in a research note.
The central bank is likely to ease its exchange-rated based policy by re-centering the policy band lower at its next policy decision due in April, he added.
Singapore’s exports in November unexpectedly jumped, thanks to a sharp rise in shipments of pharmaceuticals as well as overall increases in sales to the European Union and China, but economists say it’s too early to call a turn for the stressed trade sector.