U.S. Dollar Falls Against The Euro
By Benzinga Staff
This news comes shortly after Standard & Poor shifted the United States AAA credit rating from a stable outlook to a negative one, and the bad news and uncertainty continues for the U.S.
Reuters reports that the main reason for the weak dollar is the Federal Reserve’s loose monetary policy coupled with stagnant interest rates. The European Central Bank is raising interest rates while the U.S. Fed has remained steady.
Last week, the European Central Bank raised its refinancing rate from 1%, a record low, to 1.25%. The U.S. Federal Reserve has kept its main refinancing rate close to zero since December 2008.
The dollar is currently trading at 73.972, only a slight increase from the three-year low of 73.735 reached last week. The Euro is currently at 1.4604, which is very close to the 16-month high of 1.4649 also reached last week.
Market members will be anxiously awaiting the Federal Open Market Committee post-meeting news conference, with hopes of more competitive interest rates to drive up U.S. currency. The internal conflict within U.S government regarding budget deficits and growing debt does not help the dollar either.
Despite the U.S. unemployment rate continuing to decrease, people applying for jobless benefits is still too high and further reinforcing the stagnant low interest rates. At the end of the week of April 9th, the number of applications for unemployment benefits fell from 382,000 to 380,000.
Regardless of the outcome of Federal Open Market Committee meeting, it won’t be a speedy recovery for the dollar. The Federal Reserve expects to slowly recover all of the money initially circulated back in 2008 to help the economy get out of the recession.
According to Reuters, inflation and rising commodity prices are only driving the value of competitor currencies up, with Canadian and Australian dollars hitting multi-year peaks.
Ringgit hits new level since Asian financial crisis
By FINTAN NG email@example.com
PETALING JAYA: The ringgit closed below 3 to the greenback yesterday, breaking a psychological barrier and hitting a level not seen since the dark days of the Asian financial crisis.
The local currency settled at 2.992 to the US dollar, gaining 2.34% since the beginning of the year and charting another multi-year high.
However, exporters need not fear as its rise has been in tandem with the strengthening of other currencies in the region.
Economists told The Star there would be cause for concern only if the ringgit appreciated more than currencies whose exports competed head-to-head against Malaysia’s.
They said investors were now focusing on emerging economies, including Asia’s, given that there was less risk to growth.
They pointed out that the reasons for the better performance of the region’s currencies were expectations of tighter monetary policy due to inflation worries, stronger economic fundamentals and robust demand (compared to developed economies).
When compared with other major currencies, the ringgit had generally weakened since the beginning of the year. The ringgit weakened by 4.06% against the pound and fell by 3.07% versus the Aussie dollar and 2% against the Canadian dollar.
Bank Islam Malaysia Bhd chief economist Azrul Azwar said the ringgit’s rise should not pose many problems for local exporters as long as it was not out of sync with regional currencies.
He believed Bank Negara would continue to intervene in currency markets to ensure “orderly and gradual” movement of the currency.
Affin Investment Bank Bhd economist Alan Tan said compared with the region’s currencies, the greenback’s weakness was largely due to concerns over still unclear US data on housing and jobs, as well as signals from the Federal Reserve that monetary policy would continue to remain easy.
Stronger ringgit not a problem
By FINTAN NG firstname.lastname@example.org
So long as rise in tandem with other regional currencies
PETALING JAYA: An appreciating ringgit will not have as much of an impact on the exports front as long as it strengthens in tandem with other currencies in the region.
Malaysia’s top five export destinations in February were Singapore, China, Japan, the European Union and the United States. These countries were also the top five destinations for exports last year.
Economists told StarBiz that a strengthening ringgit would not be a problem as long as the currency’s movement was synchronised with the region where competitors include Thailand, Indonesia and the Philippines.
Malaysia’s competitors in the electrical and electronics (E&E) industry, which made up nearly 40% of total exports last year, include South Korea and Taiwan.
To varying degrees, emerging Asia’s currencies have appreciated against their major trade partners as growth risks faded and the loose monetary policies of the United States and the 17-member eurozone prompt investors to shift their focus to more robust markets.
Bank Islam Malaysia Bhd chief economist Azrul Azwar said the ringgit’s rise should not post much problem for local exporters as long as the currency’s rise was not out of sync with regional currencies.
In any case, economists have pointed out time and again that Bank Negara would continue to intervene in the currency markets to ensure that the ringgit’s movement remained orderly and gradual.
“This has always been the case, Bank Negara will intervene so as to ensure that the ringgit’s movement will not impact the manufacturing sector’s exports-intensive industries,” Azrul said.
He added that part of the reason for the rise of currencies in emerging Asia was due to expectations of tighter monetary policy as inflation fuelled by higher crude oil and commodity prices hit these economies, where demand has been stronger compared to the developed economies.
Affin Investment Bank Bhd economist Alan Tan said there were indications that the Federal Open Market Committee (FOMC) would continue to keep US benchmark interest rates low and monetary policy loose.
“The FOMC members are signalling that the easy monetary policy will continue as jobs and housing remain weak while the first-quarter gross domestic product growth is likely to be softer than the previous quarter,” he said.
The FOMC would release its rate decision on Wednesday while the first-quarter figures would be released on Thursday.
Meanwhile, SMI Association of Malaysia national president Chua Tiam Wee, whose members expect the ringgit to strengthen further, said any rise in the ringgit would have some impact on exporters.
“As trade is mostly conducted in US dollars, exporters will still have to fulfill their orders and absorb the losses,” he said.
Chua added that exporters would just have to be more productive and find ways to mitigate the strengthening ringgit via hedging or source their raw material in a more cost-effective way.
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