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17 Sep 2013
MYR and IDR exposed to Fed liquidity risks
FXstreet.com (Barcelona) - As we head towards the FOMC meeting on 17-18 September, further consolidation is expected in the Asian FX space. We have already seen dollar moves on changes in the Summers/Yellen run to take over the Fed chair at the end of Bernanke’s term. However, any similar moves running up to and beyond the FOMC meeting will be more important for volatility, rather than acting as an inflection point for any change in trends.
Last week saw the greatest upside from those North Asian countries less sensitive to any liquidity drop as a result of a potential tapering of the Fed’s open-ended quantitative easing programme.
At the forefront of the Asian FX moves was the Indian Rupee, seeing inflows as a result of measures put in place by Reserve Bank of India’s (RBI) new chairman, Raghuram Rajan. Measures announced included a swap window facility for foreign currency non-resident (FCNR) dollar funds, in an effort to draw down funding rates and make rates more attractive for NRI funds. The Rupee continues to see multi-week highs, driven down to INR62.5050 on dollar weakness.
However, this week focus should be on the more exposed South East Asian currencies with long dollar positions against Malasian Ringitt and Indonesia Rupiah non-deliverable forwards (NDFs).
Malaysia is particularly exposed to balance of payment concerns, having become increasingly dependent of Fed QE-driven flows – with almost 5 percent of capital inflows coming from foreign fixed-income investors. Despite recent efforts made by the Malaysian central bank, MYR NDFs remain very exposed to changing global liquidity conditions should the Federal Reserve decide to taper its monthly asset purchase programme.
Neighbouring Indonesia is faced with similar problems, though has been attacking the issue with aggressive monetary tightening. Despite hiking rates by 75bps in a fortnight and ramping up dollar selling into the IDR, Indonesia’s balance of payments position could still leave it exposed to Fed moves – IDR non-deliverable forwards leapt 2.2 percent to IDR11,254 following the rate hike, but any gains could be wiped out this week.
Last week saw the greatest upside from those North Asian countries less sensitive to any liquidity drop as a result of a potential tapering of the Fed’s open-ended quantitative easing programme.
At the forefront of the Asian FX moves was the Indian Rupee, seeing inflows as a result of measures put in place by Reserve Bank of India’s (RBI) new chairman, Raghuram Rajan. Measures announced included a swap window facility for foreign currency non-resident (FCNR) dollar funds, in an effort to draw down funding rates and make rates more attractive for NRI funds. The Rupee continues to see multi-week highs, driven down to INR62.5050 on dollar weakness.
However, this week focus should be on the more exposed South East Asian currencies with long dollar positions against Malasian Ringitt and Indonesia Rupiah non-deliverable forwards (NDFs).
Malaysia is particularly exposed to balance of payment concerns, having become increasingly dependent of Fed QE-driven flows – with almost 5 percent of capital inflows coming from foreign fixed-income investors. Despite recent efforts made by the Malaysian central bank, MYR NDFs remain very exposed to changing global liquidity conditions should the Federal Reserve decide to taper its monthly asset purchase programme.
Neighbouring Indonesia is faced with similar problems, though has been attacking the issue with aggressive monetary tightening. Despite hiking rates by 75bps in a fortnight and ramping up dollar selling into the IDR, Indonesia’s balance of payments position could still leave it exposed to Fed moves – IDR non-deliverable forwards leapt 2.2 percent to IDR11,254 following the rate hike, but any gains could be wiped out this week.