Thursday 28 Mar 2024
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KUALA LUMPUR (Sept 21): The ringgit weakened to 4.1615 against a strengthening US dollar after the Bank of Japan (BOJ) changed its policy framework, and investors bought back the US currency ahead of the outcome of the Federal Reserve's policy meeting.

The ringgit was 0.28% lower at 4.1503 against the US dollar at the time of writing. The ringgit earlier dipped to 4.1615 against the greenback.

Over the past 12 months, the ringgit was traded between 3.8442 and 4.4812 against the US dollar.

The US dollar Index spot rose 0.22% to 96.231 at the time of writing. The index earlier strengthened to 96.276.

Reuters reported that BOJ, overhauling its massive stimulus programme, has decided to scrap its focus on monetary base and set targets for long-term rates.

Japan's central bank has maintained the 0.1% negative interest rate it applies to some of the excess reserves that financial institutions park at BOJ.

However, it scrapped its base money target and instead set a "yield curve control", under which it will buy long-term government bonds to keep 10-year bond yields around current levels of zero percent.

Japanese data released earlier on Wednesday showed exports fell 9.6% in August from a year earlier, posting an 11th straight month of decline.

Besides BOJ's policy, investors' attention is also on the Fed. The Fed is widely expected to hold interest rates unchanged at 0.25% to 0.5%, and could hint at a rate hike by the end of the year.

Weaker-than-expected US economic data had prompted investors to call off bets for a Fed rate hike on Wednesday.

Higher interest rates do not bode well for emerging Asian markets like Malaysia as investors shift their money back to US dollar-denominated assets.

Meanwhile, in a note today, HSBC Global Research said it has a more positive outlook for emerging markets (EM) foreign exchange.

"We have turned more upbeat on EM currencies. Central to this view is the alignment of three key factors which we call the 'possible trinity': the Fed tightening slowly, China's economic stabilisation and a bottoming out of commodity prices.

"Amidst an environment of negative yields among developed markets, we favour both certain higher yielding currencies as well as selected lower yielding currencies with large current account surpluses," it wrote.

However, the research house pointed out that the resilience of emerging market foreign exchange will be tested.

"Most recently, the sudden steepening of core bond yields and the upcoming US elections have created hurdles for EM currencies. Unlike previous episodes of core bond steepening, such as the 'Taper Tantrum' in 2013, EM currencies are in a stronger position to weather the storm: valuations are not stretched and the external fundamental position has improved notably. EM asset positioning is lighter too," HSBC Global Research added.

 

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