Malaysia Meltdown: Asian Currency Crisis 2.0 Sends Ringgit, Stocks, Bonds Crashing
When China went the “nuclear” (to quote SocGen) devaluation route earlier this week in a last ditch effort to rescue its export-driven economy from the perils of an increasingly painful dollar peg, everyone knew things were about to get a whole lot worse for an EM currency basket that was already reeling from plunging commodity prices, slumping Chinese demand, and the threat of an imminent Fed hike.
Sure enough, EM currencies from Brazil to South Korea plunged, and monetary authorities – unsure whether to play down the move or cry foul – scrambled to respond.
With some Asian currencies already falling to levels last seen 17 years ago, some analysts fear that an Asian Currency Crisis 2.0 may be just around the corner.
That rather dire prediction may have been validated on Friday when Malaysia’s ringgit registered its largest one-day loss in almost two decades.
As FT notes, “sentiment towards Malaysia has been damped by a range of factors including sharp falls in global energy prices since the end of June. Malaysia is a major exporter of both oil and natural gas, with crude accounting for almost a third of government revenue.” The central bank meanwhile, “has opted to step back from intervening in the market in response to the falling renminbi, unleashing pent-up downward pressure on the ringgit.” That, apparently, marks a notable change in policy. “The most immediate challenge is the limited scope of Malaysia’s central bank to step in,” WSJ says, adding that “for weeks, it tried to stem the currency’s slide, digging into its foreign-exchange reserves to prop up the ringgit and warning banks from aggressively trading against its currency.”
Surveying the damage, here’s the one-day:
And the one week:
And the one month:
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