Big oil rally helps region’s currencies

KUALA LUMPUR: Asian currencies posted the biggest weekly rally in almost a year as a recovery in oil prices and a further round of monetary easing improved sentiment in emerging markets.

Nineteen of the 24 developing-economy currencies tracked by Bloomberg gained as oil climbed 7.7%, adding to a 5.8% advance in the previous five days. China lowered banks’ reserve requirements after November’s surprise interest-rate cut, joining central banks from India to Canada to Singapore in adjusting policy this year to spur growth. The European Central Bank is also preparing a major round of asset purchase even as its US counterpart lays the groundwork for policy tightening.

“There was some recovery in oil prices, which was supportive of emerging markets,” said Nizam Idris, the Singapore-based head of foreign-exchange and fixed-income strategy at Macquarie Bank. China’s easing “may have affected sentiment positively”, he added.

The Bloomberg-JP-Morgan Asia Dollar Index, which tracks the 10 most active currencies excluding the yen, rose 0.7%, the biggest advance since March 2014.

The People’s Bank of China cut the reserve requirement ratio for banks by 50 basis points to 19.5% on Thursday, a move expected to help the economy by injecting as much as 600 billion yuan (US$96 billion) into the banking system, Australia & New Zealand Banking Group economists estimate.

China’s currency climbed to a two-week high on Friday after the central bank raised the yuan’s daily fixing by 0.17% to 6.1261 to the dollar. The yuan is still down for the year, after losing 2.4% in 2014.

“For China, they don’t want people to think the yuan will drop too much,” said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. “A stable fixing means you can’t depreciate a lot.”

Malaysia’s ringgit led gains last week as the country is the most likely beneficiary from the oil-price rally, as Asia’s only major exporter of oil. The currency climbed 2.3%, while the Thai baht rose 0.7% and the South Korean won appreciated 0.4%.

The Malaysian government last month raised its budget-deficit target and cut its estimate for GDP expansion for 2015 amid a 49% slide in Brent crude since June. Trade data last week that beat economists’ estimates also helped bolster the ringgit.

“The ringgit has rallied on the back of a recovery in oil prices,” said Khoon Goh, a strategist at ANZ in Singapore. “There’s reduced concern over external balances after a better-than-expected trade surplus number.”

Elsewhere in Asia, the Taiwanese dollar climbed 0.2% and the Indonesian rupiah rose 0.4%. The Indian rupee added 0.2% while the Philippine peso and Vietnamese dong each fell 0.1%.