EMERGING MARKETS-Ringgit holds losses after central bank rate hold; Asian FX dip on firm dollar

Updates for Afternoon trade

By Roushni Nair

May 8 (Reuters) – The Malaysian ringgit held on to losses on Thursday after the country’s central bank kept interest rates steady in a widely expected move, while its regional peers declined marginally on renewed strength in the U.S. dollar.

The ringgit MYR= was down 1% at 4.280 per U.S. dollar, falling for a third straight session. The Philippine peso PHP= and Singapore dollar SGD= each extended losses, retreating 0.2%.

“Malaysia’s current account surplus is under threat from downsides to exports and tourism, at the same time, there are slight opportunities for trade diversion and investments away from the U.S.-China trade corridor to Malaysia,” said Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corp.

Ng remains optimistic about the ringgit’s prospects, forecasting USD/MYR to strengthen to 4.20 by end-June and appreciate to 4.10 by year-end.

Bank Negara Malaysia’s approach stands in contrast with central banks in Indonesia, Korea, Thailand and the Philippines, which have already eased rates more than once to stimulate their economies.

The dollar index =USD, which measures the currency against six major counterparts, rose 0.3% to its highest level in a week. USD/

As expected, the U.S. Federal Reserve maintained rates on Wednesday, but Chair Jerome Powell cautioned that economic growth remained uncertain due to persistent trade tensions and inflation risks.

Asian equities retreated broadly, though declines were tempered by Beijing’s stimulus plans and upcoming senior-level trade discussions between Washington and Beijing slated for the weekend.

Stocks in Jakarta .JKSE and Manila .PSI fell 0.9% and 1.2%, respectively. Shares in Bangkok .SETI slipped 0.8%, while those in South Korea .KS11 rose 0.2%.

Asian currencies have seen dramatic volatility in recent days, with the Taiwan dollar TWD=TP posting a historic 6% two-day surge against the greenback before steadying in the last two sessions. The unit was flat on the day.

Taiwan’s dollar-heavy, unhedged market saw a sudden capital influx, which triggered a record two-day rally on Friday.

With the surge coinciding with the end of U.S.-Taiwan trade talks, investors speculated on the possibility of an agreement to weaken the greenback in return for trade concessions – a notion that has been vigorously denied by Taiwan’s central bank and president.

The Indian rupee INR=IN reversed earlier gains to fall 0.4%, a day after India’s missile strikes on Pakistan and Pakistan-administered Kashmir on Wednesday.

Shares in India .NSEI were flat, while Pakistan’s benchmark index .KSE plunged 6.3% before authorities halted trading, according to traders.

Chinese military and defense stocks .CSI931066, .CSI399959 surged amid escalating India-Pakistan
tensions
, with investors betting on increased defense spending in the region.

The Indian rupee INR=IN India conducted missile strikes on Pakistan and Pakistan-administered Kashmir.

HIGHLIGHTS:

** Philippines Q1 GDP grows 5.4% y/y, below expectations

** South Korea to monitor financial, forex markets

(Reporting by Roushni Nair in Bengaluru; Editing by Kate Mayberry and Eileen Soreng)

((Roushni.Nair@thomsonreuters.com))