While the Indonesian rupiah, Thai Baht and Malaysian ringgit all showed improvement, the Philippine peso is by far the best-performing currency in 2020 with its 1% gain, according to Bloomberg.
June is indeed a good month for Southeast Asia’s currencies as the rebound narrows coronavirus-induced loses sustained by just about every foreign exchange in the region this year. The Indonesian rupiah which has surged 15% this quarter may impose a challenge on the philippine peso given the strong foreign demand for the nation’s debt.
While the nation was under lockdown, imports in April went down by the most since 2009, contributing to an improvement in the country’s current account and the peso performance.
The country, however, faces growing headwinds from declining oversees remittances. Bangko Sentral ng Pilipinas has also expressed concern over the appreciation by intervening to stop further gains. Bloomberg has reported that investors will be awaiting guidance on the currency from BSP’s policy meeting on Thursday. The central bank is expected to keep rates unchanged after slashing rates by 125 basis points this year.
According to Bloomberg, foreign funds have returned for local debt, attracted by the second-highest yields in Asia, after selling about $9.5 billion of government bonds in February and March. The potential for further rupiah gains has been indicated by inflow of $996 million since then.
For Bank Indonesia, the currency is considered undervalued amid a low inflation in Southeast Asia’s largest economy and expectations that the currency account deficit will narrow to 1.5% this year. However, near-term gains maybe limited as the central bank cut its key rate by 25 basis points last week, opening the door for further easing.
The Thai baht rose to 5.8% this quarter, narrowing the year’s loss to 3.4%. The nation’s current account surplus has boosted the Thai Baht, but it’s dwindling in the absence of tourism revenues in the lockdown. Rising gold prices, however, have provided some support for the bullion trading hub.
The Thai Baht may encounter headwinds from the Bank of Thailand, warning that it’s ready to take steps to ensure the currency strength will not hurt the economy. Bloomberg reports that investors will be monitoring the Wednesday policy meeting, where it’s widely expected to keep its key rate unchanged at 0.5%, to see there are currency-related measures.
Rather than using interest rates like other central banks, the Monetary Authority of Singapore manages the currency against major trading partners as a policy tool. While Singapore’s relaxation of virus-related curbs last week is positive for the local currency, data on Tuesday is forecast to show core inflation has deteriorated further in May.
This is likely to support the Monetary Authority of Singapore’s current stance of allowing for a weaker currency to spur the trade-reliant economy. Bloomber reports the Singapore dollar down more than 3% this year.
The fluctuation of oil prices and political turmoil have weighed on the ringgit, resulting to the region’s currency sinking to the bottom of the rankings this year. After falling more than 5% in the first quarter, the country still struggles as it is barely up 1% in the second quarter. Bloomberg has indicated that the ringgit may struggle given FTSE Russell has kept Malaysia on a watchlist for possible exclusion from its World Government Bond Index.
Inflation data on Wednesday is expected to provide a glimpse on Malaysia’s economy and any disappointment could set the stage for additional rate cuts.