Brent rally fails to ignite ringgit as investors focus on Fed

comments     Y-Sing Liau, Bloomberg     Published     Updated

The biggest rally in Brent crude in three weeks failed to prevent Malaysia’s ringgit from declining as investors in the oil-exporting nation’s currency focused more on the possibility of a US interest-rate increase in December.

The ringgit fell along with other Asian exchange rates today after the Federal Open Market Committee dropped a reference to global risks as it held US borrowing costs near zero and signalled it may make a policy move at the next meeting in December.

The prospect of monetary tightening spurred outflows from Malaysian stocks and bonds in the third quarter, exacerbating losses that have made the currency the worst performing in the region this year as commodities slumped.

“For Asian currencies to rally further, there need to be sustainable growth drivers, not just monetary jabs,” said Christopher Wonga Singapore-based senior currency analyst at Malayan Banking Bhd. The ringgit’s weakness was “largely due to dollar strength following the FOMC meeting overnight, which somewhat rebuilt expectations that the Fed may still hike in December,” he said.

The ringgit dropped 0.7 percent to 4.3015 a dollar as of 9.04am in Kuala Lumpur, taking its decline this week to 1.9 percent, according to prices from local banks compiled by Bloomberg. The currency has rallied 2.2 percent in October, headed for its first monthly advance since April.

A gauge of the dollar rose 0.6 percent in New York following the FOMC statement.

Futures traders raised bets for a Federal Reserve rate hike in December to 46 percent from 32 percent a week ago.

Malaysian Prime Minister Najib Abdul Razak stuck with his deficit reduction goal in his 2016 budget announced last Friday, forecasting the shortfall will fall to 3.1 percent of gross domestic product next year from 2015’s 3.2 percent. His Brent crude price assumption of US$48 a barrel was deemed as too conservative by Fitch Ratings in a report this week. The commodity surged 4.8 percent overnight to US$49.05.

Global funds cut holdings of Malaysian government bonds for a third month in September and have pulled a net RM16.9 billion (US$3.9 billion) from the nation’s equities this year. The yield on sovereign notes due in 2019 rose two basis points today to 3.6 percent and the 10-year yield climbed one basis point to 4.10 percent, prices from Bursa Malaysia show.

- Bloomberg



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