Singapore - Emerging-market currencies extended their retreat from an eight-month high as falling oil prices and hawkish comments from a Federal Reserve official dampened demand for developing-nation assets.
South Korea’s won led declines after Boston Fed President Eric Rosengren said market expectations for just one US interest-rate increase this year may be too pessimistic. South Africa’s rand and Malaysia’s ringgit weakened as Brent crude headed for its biggest three-day drop in seven weeks on concern a deal among major producers to reduce output will fail. Emerging-market stocks fell, led by Hong Kong’s gauge of mainland companies.
Developing-nation exchange rates have dropped this month amid weakness in commodity prices after surging by the most since at least 1998 in March as the Fed laid out a more gradual approach to tightening monetary policy. Currencies that strengthen beyond levels warranted by economic fundamentals may disrupt efforts by emerging-market central banks to rein in current-account deficits, with Bank Indonesia Governor Agus Martowardojo saying last month he didn’t want the rupiah to get too strong.
“Lower commodity prices and worries of Fed rate-hike prospects have caused emerging-market currencies to weaken again,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore. “The run in emerging markets has come to a point where the central banks may not be too comfortable.”
Currencies and bonds
The MSCI Emerging Markets Currency Index fell 0.4 percent as of 1.42pm in Hong Kong. The gauge is down 0.6 percent in April after surging 5.2 percent in March. The won weakened 0.8 percent, the rand depreciated 0.4 percent and the ringgit lost 0.3 percent.
Brent crude declined 0.4 percent, taking its three-day drop to 5.2 percent, and has fallen 12 percent to $37.54 a barrel from this year’s high set on March 18. A Bloomberg gauge of raw-material prices increased 0.3 percent on Tuesday after dropping 2.9 percent during the previous five days.
India’s rupee strengthened for a seventh day, gaining 0.1 percent, even as the central bank cut interest rates for the first time in six months. China’s yuan strengthened 0.27 percent in Shanghai as market reopened after a public holiday. Sovereign bond markets were subdued, with the yield on China’s 10-year notes climbing two basis points to 2.86 percent.
Stocks
The MSCI Emerging Markets Index dropped 0.9 percent, taking its decline in April to 2.1 percent following a 13 percent surge in March. All 10 industry measures fell, led by information technology and energy shares. Samsung Electronics was the biggest drag, losing 3.1 percent.
The Hang Seng China Enterprises Index in Hong Kong declined 1.5 percent, while benchmark gauges in Taiwan and Thailand were down 1 percent. The Shanghai Composite Index advanced 1.5 percent, heading toward its highest close in nearly three months, amid speculation government efforts to spur the economy will support the market.
“The US interest-rate outlook is really unclear with Fed officials giving different signals,” said Warut Siwasariyanon, head of research at Asia Wealth Securities in Bangkok. “We’re advising our clients to remain cautious on equities investments” and expect oil to keep falling because of the supply glut, he said.
BLOOMBERG