Good news for Asian currencies

by **Cals** Mon 07 Oct 2013, 00:42

Published: Saturday October 5, 2013 MYT 12:00:00 AM
Updated: Saturday October 5, 2013 MYT 7:53:04 AM
Good news for Asian currencies
BY INTAN FARHANA ZAINUL
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If the US shutdown is unresolved towards the second week of October , the markets may speculate on the possibility of the country defaulting on its debt.
MOST currencies in emerging Asia have risen against the US dollar after the US government’s partial shutdown.
The ringgit climbed the most in two weeks to RM3.195 against the US dollar on Thursday and strengthened to RM3.183 yesterday.
“The ringgit and other Asian currencies rose due to the US dollar’s weakness,” saysInter-Pacific Research Sdn Bhd head of research Pong Teng Siew.
He adds that the shutdown has somehow relieved the pressure on emerging Asian currencies.
“The shutdown has not impacted Asian markets negatively and it is actually good news as it eases the pressure from the potential risk of quantitative easing (QE) tapering,” he says. However, the US government shutdown is not expected to be long because it cost up to US$300mil a day to the US economy, according to news report.
The month of October started with the US partial shutdown for the first time since 1995, which lasted 21 days. It has been previously reported that the loss from the shutdown cost almost US$1bil (RM3.2bil).
The recent shutdown comes ahead of the US Federal Reserve meeting scheduled for end-October which will decide on the course of its US$85bil per month bond-buying programme, or QE.
The markets are expecting the Fed to defer its decision to reduce its stimulus programme.
“Sooner or later the Fed has to cut its bond-buying programme. But looking at the implications, it may not do so anytime soon depending on the financial market condition,” Pong says.
He says there is a risk the ringgit could come under pressure should the Fed reduce the US bond-buying programme. That will have an impact on the local stock market.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias says in an e-mail reply that if the shutdown is unresolved towards the second week of October, the markets will speculate on the possibility of the United States defaulting on its debt.
“However, this situation is unlikely as the US will never allow its reputation as the world’s largest economy to be tarnished by defaulting.
“But if speculation (of default) gets too intense, it will likely drive capital back into emerging markets and push up their currencies,” he says.
He opines that the length of the shutdown is the main concern. “If the shutdown drags on until the end of the month, there is a possibility the Fed will once again delay its intention to reduce its bond purchases,” he adds.
He, however, says that the impact of the US government shutdown on the Malaysian economy is negligible.
Meanwhile, RAM Holdings Bhd chief economist Dr Yeah Kim Leng says while there would be a “slightly negative knock-on effect”, it would affect investors’ sentiment more than anything else.
“If the shutdown is prolonged, this could result in slower economic growth, which some estimate could shave a quarter of a percentage point from the US gross domestic product for this year
“That would probably have a slight effect on Malaysia’s economy – on our exports specifically,” Yeah adds.