Southeast Asian currencies strengthen against the dollar

Signs are appearing that higher-yielding currencies in the emerging markets are advancing against the dollar as expectations of an early increase in US interest rates begin to wane.

The Malaysian ringgit and the Indonesian rupiah climbed in value on the back of healthy Malaysian export figures and positive Indonesian trade data in August, while the yen also appears to be making gains against the dollar after the Bank of Japan abandoned plans to expand its already gigantic stimulus measures.

Worries remain in the aftermath of the Great Chinese Forex Sell Off of August, which wiped trillions in valuations from global markets. China is the second largest economy in the world and the planet’s biggest energy user, and its huge forex sell-off in August pushed many anxious investors out of the higher-yield (but higher-risk) EM currencies.

This is what triggered the massive wipe-out in valuations, but the new data from these Southeast Asian nations suggests that sentiment is improving in the emerging markets. The Tokyo-based CEO of FPG Securities told Bloomberg news: “The rupiah was sold off quite sharply before sentiment turned, so the adjustment may be also quite large.” However, as investor anxieties ease, he believes that the rupiah could strengthen to as much as 13,700 over the coming three weeks.

After monthly exports leap in August, the Malaysian ringgit surged at its most vigorous rate since 1998.

The dollar fell to 120.00 yen on 7th October in Tokyo after the BoJ backed away from additional stimulus measures, even though growth has been underwhelming there and prices more or less stagnant. Speaking to Bloomberg news, the Chief Currency Strategist at Tokyo’s Daiwa Securities, Yuji Kameoka, said: “Today’s meeting showed the BoJ will not be swayed into action easily.”

Somewhat ominously, he added: “Receding expectations for BoJ action will gradually weigh on the dollar.”

Could a USD sell-off be on the horizon?