Benzinga Daily Forex Overview: Malaysia's Disastrous Capital Flight

Money leaves Malasyia on an unprecedented scale. Take a look at the nation's foreign exchange reserves. They fell by close to 25 percent during 2009 according to investment bank UBS even though the country continued to run a huge surplus on the current account of its balance of payments.

Says UBS (NYSE:UBS): "Question: which Asian country had the biggest FX losses in 2009?" The answer is Malaysia and by a very large margin; we estimate that official reserves fell by well more than one quarter on a valuation-adjusted basis". It describes the situation as "bizarre" and contrasts Malaysia with other countries with large current account surpluses – Thailand, China, Taiwan, Singapore, and Hong Kong – which have seen their reserves increase – as should be expected. Source

However, the US dollar got left behind Monday as positive economic data in China and the aftereffects of last week's disappointing U.S. payrolls report led investors to ditch the greenback for higher-yielding currencies.

Positive global economic data point to a continuing recovery, which is benefiting the euro and commodity-backed and emerging-market currencies, and persistent troubles in the U.S. labor market weigh on the dollar.

The lagging U.S. jobs report is "mostly perceived as a dollar issue and not as a broad risk event," especially when Chinese data reported overnight points to a strong recovery there, said Sebastien Galy, currency strategist at BNP Paribas (NYSE:BNP) in New York. Source

Meanwhile a report issued by the South African Reserve Bank showed that the country's foreign currency reserves fell by 1.9 percent to $39.7 billion in December, after gaining 1.8 percent in November.

According to the Pretoria-based bank, a 7 percent drop in the price of gold last month to an average of $1,128.92 an ounce contributed to pushing reserves down. Gold accounts for about 11 percent of the total.

Central bank Governor Gill Marcus has said on three separate occasions since taking office on Nov. 9 that it's not the bank's job to intervene to influence the level of the currency. Source

In Switzerland, the Swiss National Bank, faced with a recent rise in the Swiss franc, Monday renewed its pledge to prevent any excessive strengthening of the Swiss currency.

"The Swiss National Bank will continue to prevent any excessive appreciation of the Swiss franc against the euro," SNB President Philipp Hildebrand said in a media release.

He said Switzerland's central bank had no exchange rate target but it will monitor foreign exchange market developments "very closely." Source