Ringgit Drops Most in a Month as U.S. Data Revives Fed Taper Bet

Malaysia’s ringgit dropped the most in a month after a jump in U.S. business activity spurred speculation the Federal Reserve will start trimming its stimulus earlier than predicted. Government bonds retreated.

The MNI Chicago Report business barometer climbed to 65.9 in October from 55.7 in September, data showed yesterday. That was the biggest increase in more than three decades and exceeded the median estimate of 55 in a Bloomberg survey. The ringgit may weaken should the Fed decide to reduce its debt purchases this year, Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore, said in an interview.

“The strong Chicago PMI boosted the dollar,” said Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank Ltd. in Singapore. “The Chicago PMI renewed expectations that the Fed could still taper in December.”

The ringgit depreciated 0.7 percent, the biggest drop since Sept. 30, to 3.1770 per dollar as of 10:33 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency declined 0.6 percent this week. It gained 3.3 percent in October, the best performance among more than 100 global currencies tracked by Bloomberg.

The Fed maintained its $85 billion monthly bond-buying program this week, while noting signs of “underlying strength in the broader economy.” Policy makers will hold off from trimming the debt purchases until March, according to analysts surveyed by Bloomberg Oct. 17-18. A reduction was earlier forecast for December in a similar survey a month before.

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The ringgit trimmed the day’s losses after a report showed Chinese manufacturing expanded more than economists forecast in October, Maybank’s Saktiandi said today. The currency fell as much as 1 percent earlier to 3.1879 per dollar, the weakest level since Oct. 22.

The Purchasing Managers’ Index was at 51.4, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compares with 51.1 in September and the 51.2 median estimate in a Bloomberg survey. A separate manufacturing gauge from HSBC Holdings Plc and Markit Economics rose to 50.9 from 50.2.

Maybank raised its year-end forecast for the ringgit to 3.15 per dollar from 3.20, after the government announced measures in last week’s budget to cut the fiscal deficit, according to a research note yesterday, written by analysts including Saktiandi.

Overseas investors boosted holdings of Malaysian government debt by 7.6 percent to 228.6 billion ringgit ($72 billion) in September from a month earlier, after three straight months of declines, central bank data showed yesterday.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, rose 38 basis points to 7.73 percent. The rate fell 59 basis points, or 0.59 percentage point, this week.

The yield on the government’s 3.172 percent notes due July 2016 climbed two basis points today and three basis points from Oct. 25 to 3.14 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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