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Emerging currencies suffer as oil prices head south

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Emerging market currencies suffered in Asian trading on Tuesday as another drop in oil prices and a regional equity sell-off pushed investors into safer assets.

[TOKYO] Emerging market currencies suffered in Asian trading on Tuesday as another drop in oil prices and a regional equity sell-off pushed investors into safer assets.

The oil-linked Malaysian ringgit and South Korean won were among the top losers against the dollar as crude fell back below US$30 a barrel owing to a global supply glut, weak demand and overproduction.

The ringgit fell 0.35 per cent against the greenback and the won slumped 0.47 per cent after data showed South Korea's economic growth slowed in 2015 following a soft fourth quarter and the sharpest annual decline in exports since the global financial crisis.

The Indonesian rupiah, the Taiwan dollar, and Thai baht also retreated.

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Market voices on:

"Global risk aversion was reignited following a drop in oil prices," Kim Dae Hun, a Seoul-based currency trader at Busan Bank, told Bloomberg News.

"While South Korea's growth data won't have a significant impact on the exchange rate immediately, sluggish economic fundamentals support a weaker won in the long term." In Tokyo trading, the dollar weakened to 118.18 yen from 118.33 yen in New York, while the euro was also down at 128.17 yen against 128.39 yen.

Traders tend to shift their investments into the yen as it is considered a safe bet in times of uncertainty and turmoil.

The euro slipped to $1.0845 from $1.0851.

Dealers are now awaiting the first policy meetings of this year by the US and Japanese central banks.

First up is the Federal Reserve and while it is expected not to ease monetary policy - having lifted interest rates just last month - investors will be poring over what it has to say about the recent worldwide volatility.

Then on Friday the Bank of Japan wraps up its first policy meeting of the year.

Economists are divided on the likelihood of more action after governor Haruhiko Kuroda moved at the weekend to temper talk of a stimulus increase.

In an interview with Bloomberg in Davos, Switzerland, Kuroda said the BoJ was ready to act "if the underlying inflation trend is seriously affected".

Marcel Thieliant from research house Capital Economics said: "The recent strengthening of the yen and the plunge in the Nikkei were similar in magnitude to last summer," when the Bank of Japan decided against further loosening monetary policy.

"A slowdown in underlying inflation will be needed to convince policymakers that more easing is required."

AFP

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