Ringgit Weakens for Second Day Before Fed Meeting; Bonds Steady

Malaysia’s ringgit dropped for a second day, after a recent rally propelled it to a four-month high, and sovereign bonds were steady before a Federal Reserve review that may indicate the timing of its stimulus reduction.

The ringgit has gained 3.3 percent this month, the second-best performance among Asia’s most-traded 11 currencies, according to data compiled by Bloomberg. The Federal Open Market Committee concludes a two-day policy meeting today. The Fed will start paring its $85 billion of monthly bond purchases only in March, according to a Bloomberg survey of analysts.

“We have the FOMC decision tonight and from that point of view, we’re probably seeing some positions that are profitable being taken off the table,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “We have had some good gains in the ringgit.”

The ringgit weakened 0.3 percent to 3.1546 per dollar as of 9:54 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.1232 on Oct. 28, the strongest level since June 17. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose nine basis points to 7.91 percent.

Leveraged investors outside Malaysia are covering short dollar positions against the ringgit ahead of today’s FOMC announcement, according to a foreign-exchange trader. A short position is a bet that a currency will weaken.

Budget Rally

The Malaysian currency rallied in October as the government announced a consumption tax and scrapped sugar subsidies in its 2014 budget to trim a fiscal shortfall it has run since 1998. The measures, which were unveiled Oct. 25, would be credit positive if fully implemented, although structural fiscal weaknesses and policy execution risks remain, Moody’s Investors Service analyst Christian de Guzman in Singapore wrote in an Oct. 28 report.

Gross domestic product will increase 5 percent to 5.5 percent in 2014 from an estimated 4.5 percent to 5 percent in 2013, according to the finance ministry’s report issued Oct. 25. Malaysia’s economic growth must be sustainable and “fiscal consolidation is part and parcel of that,” Prime Minister Najib Razak told reporters at a conference in London yesterday.

The yield on the 3.172 percent sovereign bonds due July 2016 was little changed at 3.13 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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