Ringgit, Philippine peso in the limelight

> Rise in oil prices boosts Malaysian currency to highest level in over a week

SINGAPORE: The ringgit yesterday hit its strongest level in more than one week thanks to higher oil prices, while investors awaited the unveiling of Budget 2017 today.

The Philippine peso touched a near one-month high on a budget surplus in August and after the local equity market on Wednesday saw the largest inflows in three weeks. Sentiment improved on hopes that President Rodrigo Duterte’s foreign visits would create an inflow of business. He is in China this week.

The ringgit gained 0.5% to 4.1700 per dollar at one point, its strongest since Oct 11, as a jump in crude prices eased concerns over Malaysia’s oil and gas revenue. US crude prices on Wednesday hit a 15-month peak due to a drop in US stocks and an expectation of an Organisation of Petroleum Exporting Countries-led cut in production.

Prime Minister Datuk Seri Najib Abdul Razak’s 2017 budget, due this afternoon, is expected to feature a raft of populist measures in a bid to assuage voters unhappy with his leadership and rising living costs.

That could support economic growth, but any widening of the fiscal deficit at a time the economy is cooling could risk downgrades to the country’s sovereign debt.

“If the budget sticks to fiscal consolidation path, it will be positive for the ringgit,” said Qi Gao, FX strategist for Scotiabank here.

“But if that’s a populist budget, it will spur bond outflows and undermine the ringgit ahead of a FOMC meeting in December,” Gao said, referring to the Federal Open Market Committee. The Fed is expected to raise interest rates at the December meeting.

Most emerging Asian currencies took a breather ahead of a European Central Bank (ECB) monetary policy meeting late yesterday.

The main focus is whether ECB president Mario Draghi will give any indications that the bank is poised to taper its bond purchase programme. The ECB may defer until December any changes to its asset purchases, sources familiar with the discussion said last week.

“The ECB meeting and press conference will likely focus on the tone regarding tapering or extension of the quantitative easing,” said Nordea Markets’ chief analyst Amy Yuan Zhuang here, referring to quantitative easing.

“We won’t have any clear-cut answer but a signal of extension would be Asia positive and tapering would be negative.”

A tapering could reduce global liquidity, hurting investors’ appetite for higher yields in emerging Asia. – Reuters