Safe haven support keeps dollar near 19-month high on growth risks

SINGAPORE - The dollar held near a 19-month high on Monday, bolstered by safe-haven buying as heightened concerns of a global economic slowdown reduced appetite for riskier assets such as stocks and Asian currencies.

Weaker-than-expected economic data out of China and Europe and fears of a possible US government shut down spooked investors away from stocks toward safe haven assets such as the greenback and yen.

"The dollar is clearly showing it is attractive during times of market stress," said Ray Attrill, head of currency strategy at NAB.

The dollar index, which gauges its value versus 6 major peers, was little changed at 97.44, below the 19-month high of 97.71 it hit on Friday.

The Australian dollar, whose fortunes are closely tied to China's economy, was marginally lower at $0.7174. It lost 0.3 percent of its value last week as data showed Chinese November retail sales grew at the weakest pace since 2003 and industrial output rose the least in nearly three years, underlining risks to the economy.

The offshore Chinese yuan was flat at 6.9013.

Apart from fears of a global economic slowdown, markets are also focusing on the future trajectory of US monetary policy.

The Federal Reserve is set to raise interest rates by 25 basis points at its Dec. 18-19 meeting. The central bank has lifted rates eight times since December 2015 in a bid to restore policy to more normal settings after having slashed borrowing costs to near zero to combat the financial crisis a decade ago.

With the December hike largely factored in by the market, larger moves in the dollar will be guided by the Fed's forward guidance.

According to their latest projections in September, the median view among the Fed's policymakers was for three rate hikes in 2019. However, interest rate futures used to gauge the probability of further hikes are pricing in only one rate hike in 2019.

Traders believe that higher US borrowing costs will likely hurt US growth momentum and ultimately force the Fed to pause its monetary tightening path.

Recent comments by Fed officials have also been read as dovish by some analysts. Last month, Fed Chairman Jerome Powell said rates were near the range of policymakers' estimates of "neutral" - the level at which they neither stimulate nor impede the economy

"The Fed will most likely move from an auto-pilot mode to being data dependent," added Attrill.

The yen was flat in early Asian trade at 113.36 to the dollar. It strengthened against the euro and sterling last week, reflecting the risk-off mood in the financial markets.

The euro was also little changed at $1.1304, having lost 0.6 percent last week after weaker-than expected data out of France and Germany suggested that economic activity in Europe remains weak.

Sterling remained under pressure in Asian trade, down 0.02 percent at $1.2582. British trade minister Liam Fox said on Sunday talks with the European Union to secure "assurances" for parliament on Prime Minister Theresa May's Brexit deal will take time, with a decision expected in the New Year.

source: news.abs-cbn.com

Most Asia FX set for 2016 losses; yuan depreciates most since 1994

SINGAPORE - Asian currencies rose on the last trading day of 2016 on Friday, but most were set to post annual losses as the U.S. dollar climbed on expectations of higher interest rates next year.

Emerging Asian currencies were generally higher on the day, with the dollar losing some steam after the euro briefly soared on stop-loss buying in thin year-end trading.

"This is more a position adjustment rather than something fundamentally changing in the background," said Sim Moh Siong, FX strategist for Bank of Singapore.

"Our view is still for Asian currencies to weaken over the course of next year," he said.

While Asian currencies could rebound early in 2017 if the dollar retreats, such a pull-back could provide an opportunity to buy the greenback on dips, Sim added.

Investors are waiting to see if U.S. President-elect Donald Trump will quickly push expansionary fiscal policies once he is sworn in on Jan. 20, which would boost expectations for higher inflation and interest rates.

The Chinese yuan was the worst performer among major Asian currencies in 2016, and market watchers expect it to recoil further next year if the dollar continues to climb.

The yuan is down nearly 6.6 percent against the dollar in 2016, putting it on track for its biggest annual fall since China established its foreign exchange market in 1994.

Concerns about capital outflows and a slowdown in China's economy have weighed on the yuan along with the stronger dollar, and investors are also worried about a potential increase in U.S.-China trade tensions under the incoming Trump administration.

The Taiwan dollar is on track for an yearly gain of 2.7 percent, making it the best performing emerging Asian currency in 2016.
The Taiwan dollar had gained a boost earlier this year, helped by large foreign investor inflows into Taiwanese equities.

Overseas investors, however, have pulled money out of Taiwanese equities in the fourth quarter, and that has weighed on the Taiwan dollar as of late.

Emerging Asian currencies have declined broadly since early November as U.S. bond yields jumped on expectations that Trump's proposals for infrastructure spending and tax cuts will boost economic growth and inflation.

Worries about Trump's stance on trade have also weighed on the currencies of export-dependent countries in Asia.

source: news.abs-cbn.com

Asia shares stage patchy recovery but volatility seen staying high

TOKYO - Asian shares struggled to recover on Thursday with volatility remaining high, while emerging economy and commodity-linked currencies softened as investors worried about the global repercussions of slower growth in China.

Japan's Nikkei rose for the first time in four days, gaining 0.7 percent.

Many Asian bourses also advanced but weakness in Australia and falls in Asian currencies drove MSCI's dollar-denominated broadest index of Asia-Pacific shares outside Japan down 0.2 percent.

European shares are expected to rise, with spread betters looking to gains of up to 0.9 percent in Germany's DAX and Britain's FTSE.

Wall Street stocks also jumped almost 2 percent on Wednesday, which traders saw as a natural move after big falls.

Despite Wednesday's rebound, shares have only recovered about half of the losses seen earlier in the week.

Also helping to boost the market, Apple, the world's largest company by market capitalization, jumped more than 4 percent, in anticipation of its Sept 9 media event where it is expected to unveil new iPhones and potentially a new version of its Apple TV set-top box.

Traders were spared for now from keeping a nail-biting watch on wild Chinese share markets, which are closed for a holiday for the rest of the week.

Still, highlighting the woes of commodity exporters that are suffering from concern about cooling growth in China, the Australian dollar fell 0.3 percent after weak local retail sales.

The Aussie slipped to $0.7020 near its six-year low of $0.6982 touched on Wednesday.

Oil prices also remained volatile after their 25 percent surge late last month from 6 1/2-year lows.

Brent crude last stood at $50.43 per barrel, slipping further from one-month high of $54.32 hit on Monday, though it kept some distance from a 6 1/2-year low of $42.23 hit just one week before that.

HIGH VOLATILITY THE NEW NORM?

While global share prices may be getting some respite, any relief rallies may be brief.

With uncertainty over policy in the United States and China, investors expect trade to remain extremely choppy.

The CBOE Volatility index is still at 26, about twice as high as its usual levels around 12 to 16, even as it has eased from a high over 50 percent hit last week.

A similar gauge for the Japanese share market, the Nikkei volatility index, stood at 36 while that for Europe was at 37 on Wednesday.

"Whenever the VIX has hit 40 in the past, volatility has stayed high for a while. I expect more aftershocks will follow," said Arihiro Nagata, head of derivatives at SMBC Nikko Securities.

In the currency market, the dollar firmed slightly against the yen, in line with the recovery in global share prices, to 120.45 yen. The euro was little changed at $1.1225, ahead of the European Central Bank's policy meeting later in the day, with some traders speculating the bank could drop hints of further easing to keep the euro zone's nascent recovery in shape.

On the other hand, many emerging market currencies remained under pressure, hit by China fears and the prospect of higher U.S. interest rates.

The Brazilian real tumbled to its weakest level since 2002 on Wednesday as expectations of a growing fiscal deficit fed fears that Brazil would lose its investment-grade credit rating.

Emerging market currencies could face more pressure if Friday's U.S. payrolls data reinforce expectations that the U.S. Federal Reserve is on course to raise interest rates in coming months.

On Wednesday, U.S payroll processor ADP reported that private payrolls increased 190,000 last month. While that was below economists' expectations for a gain of 201,000 jobs, it was a step up from the 177,000 positions created in July.

source: www.abs-cbnnews.com

Falling yen raises specter of 'currency war' in Asia

SINGAPORE - From South Korea to Indonesia and India, monetary authorities are preparing to let their currencies weaken as a falling Japanese yen makes their economies uncompetitive, and drags them into what some policymakers are calling a "currency war".

The Indonesian rupiah, Malaysian ringgit, Thai baht and other currencies had been sliding gradually against a broadly strong U.S. dollar this year.

They hit fresh lows this week, their sudden declines coming after the yen dropped to a 13-year low on Friday. The region's normally interventionist authorities, however, kept their feet off the brakes.

An adviser to India's finance minister said the country's export growth was flailing not just because of weak global demand but also as a result of the currency-weakening monetary stimulus policies pursued in major economies such as Japan and the euro zone.

"Call it competitive devaluation, currency war or something else, the fact is such policies are having and will have implications for trading partners," the adviser said. "We cannot afford to let our currency become less competitive."

India's rupee has been an outperformer as most other currencies ceded ground to a dollar that has been pushed up by expectations that U.S. interest rates will rise at some point this year.

Indonesia's rupiah is down nearly 8 percent against the dollar so far in 2015, eclipsing a 7 percent decline in Malaysia's ringgit.

While the yen has lost 16 percent in 9 months and the euro has fallen 18 percent since early May 2014, Asian currencies have depreciated far less, making their exports less cheap in international markets.

Theoretically Asian currencies ought to be weaker as, in general, inflation levels in the region are higher than those of major trading partners, most of which are dicing with deflation.

Yet, data from the Bank for International Settlements (BIS) shows China's yuan was 30 percent higher in April in trade and inflation-adjusted terms than in 2010. Korea's won was 15 percent more expensive than in 2010, while the yen was 28 percent weaker.

Korea's exports have fallen every month this year while Chinese exporters have seen both their sales and profits fall.

"There is a risk of currency war where the dollar tends to strengthen, so other countries will be affected," Indonesian central bank Governor Agus Martowardojo told reporters on Monday.

NOT AS BRUTAL AS 1997

There are parallels with 1997 when an extremely weak yen, highly uncompetitive exchange rates and current account deficits culminated in the Asian currency crisis.

"I don't think it is going to get as brutal as that," said Gaurav Saroliya, a macro strategist at London-based Lombard Street Research, listing crucial differences.

Inflation is less of a problem than it was then, making it easier for Asia to cope with weaker currencies. Asian central banks possess far bigger currency reserves. Moreover, the regions' markets are more flexible and foreign investment flows are less volatile than they were in 1997.

Without going anywhere near as far as the massive quantitative easing policies employed in Japan and Europe, authorities in Asia have been subtly nudging their currencies lower.

India's central bank effectively capped the rupee by mopping up investment inflows and building currency reserves.

Thailand eased controls on domestic investors moving cash abroad, while Indonesia loosened its tight grip on rupiah trading.

South Korea is particularly sensitive to the yen's faster depreciation as its exporters compete with Japanese firms in the same markets for cars and electronic goods.

Officials in Seoul told Reuters, however, that they lack the tools to push the won down to the same extent as the yen.

Whereas Asian currencies have undergone a creeping depreciation since 2014, the yen's fall last week could prove to be a trigger for Asia's currencies to weaken further.

"A lot of these countries are facing a double whammy of poor exports because of a very uncompetitive exchange rate, thanks to Japan and years of portfolio inflows during the QE environment, and also poor household demand," said Saroliya.

"It is overall a major headwind. So they will be forced into choosing a weaker exchange rate through monetary easing or non standard measures."

source: www.abs-cbnnews.com

Asian currencies to rise over next year

BANGALORE - Emerging Asian currencies will rise a little over the next year on improved economic activity, although the Federal Reserve's anticipated policy tightening could limit gains, a Reuters poll showed.

Almost every major Asian currency, except the Thai baht, has had a dismal year so far, with the Taiwan dollar, Chinese yuan and Philippine peso leading losses.

Analysts polled by Reuters over the past week, however, predict most currencies to gain slightly or hover around their current levels in a year's time.

The South Korean won is forecast to gain the most, over 2 percent, followed by a 1.8 percent appreciation in the yuan and a 1.5 percent rise in the Indian rupee.

Recent economic data has largely failed to impress and business surveys on Wednesday showed factories across most of Asia lost steam in September due to waning demand. South Korea's manufacturing sector shrunk for the first time in 3 months.

Still, expectations of better economic performance in China, India and other major economies will likely help in retaining investor interest.

"China has recorded some pretty sizeable trade surpluses over the past few weeks and will probably have some appetite to allow its currency to appreciate slowly," said Benjamin Reitzes, senior economist and vice president at BMO Capital Markets.

The Chinese yuan is expected to trade at 6.10 to the dollar in three months, 6.08 in six months and 6.03 in a year. It last traded around 6.14.

That would reverse the downward trend seen in the currency earlier this year when the People's Bank of China sold the yuan in order to break the one-way trend of appreciation and encourage volatility.

But China is in the midst of restructuring itself into a consumer economy and that experiment has led to growth falling to its lowest level in almost a quarter century.

Rising risks of an crash in its housing market has also prompted policymakers to ease home buying restrictions as well as introduce targeted stimulus for builders and some banks.

"The likelihood of more stimulus is pretty solid. The question is how they achieve it without distorting their economy or pushing the housing market," said Reitzes.

The poll also showed the Indian rupee is likely to trade at 61.25 a dollar in one month, 61.50 in six months and 61.00 in a year. It was last at 61.65.

"The rupee has proved to be quite sensible to developments in international markets, particularly the U.S. Fed's actions," said Hanna Luchnikava, South Asia economist at IHS Global Insight.

"We might see some selling pressure but India's balance of payment position is much more sustainable and capital inflows remain pretty buoyant following elections." she added.

The Thai baht and Indonesian rupiah, on the other hand, are expected to continue to weaken, reaching 33.00 and 12,200 respectively by September 2015.

The rupiah hit an eight-month low on Tuesday and was on track to lead monthly losses in Asian currencies, which have taken a hit as investors position for an eventual rise in U.S. interest rates.

The baht was bid at 32.35 on Thursday and the rupiah at 12,125.

FED RATE HIKE
The U.S. Federal Reserve is on track to end its stimulus this month and is expected to start raising interest rates by the middle of 2015.

That could stall Asian currencies and lead to a sell-off if investors rush out of emerging market assets.

"The severity of the impact would be different for different currencies but almost all Asian units are likely to take a hit once the Fed starts raising rates," said Amy Zhuang, analyst at Nordea.

Most emerging markets, especially India and Indonesia, were caught off-guard in 2013 as investors dumped assets there after the Fed signaled it would begin cutting bank on its $85 billion a month stimulus purse.

Although analysts said emerging markets are better prepared this time around, the possibility of a steeper rise in U.S. bond yields is likely to dampen the appeal of higher-yielding Asian currencies and assets.

source: www.abs-cbnnews.com

Asian currencies mostly steady amid China slowdown

BANGALORE - Emerging Asian currencies are expected to mostly hold steady in the coming year as the global economic recovery gathers pace and the outlook for risk improves, but a slowdown in China remains a key concern, a Reuters poll showed.

After deep losses in 2013, most developing market currencies have gained so far this year, suggesting less anxiety about the Federal Reserve's stimulus-tapering and stronger global growth expectations.

Still, most currencies are either expected to hold steady or remain soft over the course of the coming year while the Chinese yuan will likely recoup after a rare weak spell.

Beijing engineered a steep depreciation in the yuan in February and March to strike at speculators betting on one-way appreciation. Market confidence in long-term financial reforms, however, will continue to attract capital inflows and add to upward pressure on the Chinese currency.

Thursday's poll of more than 50 foreign exchange analysts showed the People's Bank of China (PBOC) may let the yuan firm to 6.20 in a month against the dollar, 6.05 in six months and appreciate to 6.00 in a year.

A slew of weaker-than-expected data out of China this year has sparked worries over the health of the world's second-largest economy and countered optimism about global growth.

"China growth factor dominates most currencies and could be a catalyst for renewed weakness in emerging markets," wrote Mark McCormick, FX strategist at CA-CIB, in a note.

A slowing Chinese economy bolsters the case for more stimulus steps and reinforces the view that yuan appreciation will be restrained to support exports. The government has unveiled targeted measures, including scrapping taxes for small firms, offering more help for ailing exporters and boosting investment in urban infrastructure and railways.

Tapering and expectations that U.S. interest rates will start to climb from the second half of 2015, could add pressure on emerging market currencies although analysts say this has been largely priced in. Only a radical change would lead to another sell-off of emerging market assets.

"There is also an emerging notion that limited room for higher-adjusting Fed monetary policy expectations is likely to keep the greenback capped from the current levels," wrote Manuel Oliveri, FX strategist at Credit Agricole, in a research note.

SOFT TO STEADY COURSE

Most vulnerable among Asia's emerging market currencies are the Indonesian rupiah and Indian rupee. The rupiah led losses last year with a fall of 21 percent against the dollar while the rupee INR= weakened slightly more than 11 percent.

Investors are still concerned that both countries are highly dependent on foreign money to fund their large current-account deficits as growth falters.

Southeast Asia's largest economy appears to have turned a corner this year with its current-account deficit narrowing, but Indonesia is confronting weaker exports due to soft commodity prices and high consumption.

So far this year, both currencies are leading gains in the region but were seen weakening against the dollar in a year.

Indeed, the rupee's recent rally is set to reverse course as upbeat sentiment ahead of a general election wears off and economic growth remains slow.

The poll showed the rupee will likely weaken to 60.61 in one month, 61.50 in six months and 62.00 in a year, while the rupiah is expected to trade at 11,434 in one month, 11,772 in six months and 11,800 in 12 months.

The Taiwan dollar, Malaysian ringgit, Philippine peso, Thai baht  and Singapore dollar - after losing against the dollar in 2013 - were expected to hold steady over the next year.

The South Korean won will likely hold steady over the next 12 months, but a weaker Japanese yen could weigh on the currency as it hampers prospects for Korean exports.

While weak currencies exacerbated import costs for regional countries during a time of tepid domestic demand, analysts now expect that to help boost exports on the back of a stronger recovery in the United States.

source: www.abs-cbnnews.com

PH bond market grows 12 pct in Q2 - ADB

MANILA, Philippines - The country's local currency bond market grew by 12.1% in the second quarter on the back of higher borrowings by the national government, according to an Asian Development Bank report.

In a report, ADB said the local currency bond market hit P4.086 trillion in the second quarter from P3.646 trillion a year ago.

Most of the bonds outstanding were government securities, totaling P3.545 trillion. Corporate bonds totaled P541 billion.

In the second quarter, outstanding fixed-income instruments issued by the government and state-owned firms rose 12.5%, as Treasury bonds jumped 15.7%.

In the April to June period, the government sold P90.9 billion of short-term debt papers, while domestic investors bought P30 billion of Treasury bonds.

On the other hand, fixed income bonds issued by government owned-and -controlled corporations fell 8.5% in the second quarter to P113.5 billion.

The local corporate bond market jumped 9.3% to P541 billion in the second quarter from P495 billion in the same period last year.

During the period, Energy Development Corp. was the sole issuer of corporate notes, raising P14 billion worth of 7- and 10-year bonds.

The ADB noted only 51 companies were actively tapping the domestic capital market, with 31 issuers accounting for 92.2% of the total outstanding corporate bonds at end-June.

Most were publicly listed with the Philippine Stock Exchange, and only 5 were private companies.

As of end-June, San Miguel Brewery was the largest firm issuer in the country with P45.2 billion of outstanding debt. Ayala Corp. followed with P40 billion and Banco de Oro Unibank with P38 billion.

Other top corporate issuers were SM Investments (P36.1 billion), Ayala Land (P31.2 billion), Energy Development (P26 billion), Philippine National Bank (P21.9 billion), Manila Electric (P19.4 billion) and Philippine Long Distance Telephone (P17.3 billion).

source: www.abs-cbnnews.com

Peso at weakest level since January 2012

SINGAPORE - The Indonesian rupiah hit a fresh four-year low on Friday, set to see its worst week in more than five years as most emerging Asian currencies stayed on course to post weekly losses.

At the same time, the Philippine peso lost 0.3 percent to 44.31 per dollar, its weakest since January 2012 on dollar demand from local corporates, traders said.

The Philippine currency recovered some of its earlier losses on remittance inflows.

Still, the peso is expected to stay weak, traders said, adding that 44.00 had become a resistance level.

Indonesian rupiah

Most currencies, however, rebounded on the day due to shortcovering ahead of the weekend.

The Indonesian rupiah fell 0.3 percent to 10,830 per dollar, its weakest since April 2009, as investors awaited a government announcement on a policy package to curb inflation and boost jobs in the early afternoon.

Before the announcement, Jakarta shares rose 1.4 percent, while forwards markets pointed to a slight rebound in the currency.

The Indonesian currency, along with the Indian rupee, are seen as the most vulnerable to the Federal Reserve's withdrawal of monetary stimulus due to widening current account deficits, slowing economic growth and strong resistance to enacting much-needed reforms.

On Thursday, Fitch Ratings said those two countries are not at immediate risk of a credit rating downgrade but it could act if their governments failed to calm financial market tensions.

"I am worried about the possibility of a downgrade by Fitch for Indonesia," said a Jakarta-based trader, adding that a potential ratings cut will accelerate capital outflows.

The rupiah has lost 4.2 percent against the dollar so far this week on capital outflows and corporate dollar demand, which would be the largest weekly percentage loss since November 2008, according to Thomson Reuters data.

The Indonesian currency, however, was not the worst performer this week yet among emerging Asian currencies. The rupee has fallen 4.4 percent. If the loss is maintained, that would be the largest weekly fall since September 2011, the data showed.

The Thai baht has slid 2.2 percent and the Philippine peso eased 1.4 percent.

The Malaysian ringgit has fallen 1.0 percent and the Singapore dollar is down 0.8 percent.

But the Taiwan dollar barely changed, while the South Korean won eased just 0.3 percent.

Investors dedicated to emerging Asian markets are betting that the won and Taiwan dollar will fare better than their Southeast Asian counterparts.

"In the past few days, we see increasing differentiation for example in the case of the North Asian currencies vs South Asian counterparts, driven by fundamental dynamics of current account and balance of payments," said Desmond Fu, analyst with Western Asset Management in Singapore.

"Over time, fundamentals will exert themselves and where valuations emerge, there will be support from domestic investors even if offshore investors continue to divest."

source: www.abs-cbnnews.com