Ringgit Touches Five-Month Low as U.S. Recovery Boosts Dollar

Malaysia’s ringgit touched the lowest level in almost five months on speculation investors are favoring the dollar as the U.S. economy strengthens and the Federal Reserve pares record stimulus.

The International Monetary raised its 2014 growth forecast for the world’s largest economy to 2.8 percent from 2.6 percent yesterday, and boosted projections for developing Asia to 6.7 percent from 6.5 percent. The yield on Malaysia’s 10-year government bonds climbed for a second day before data today that may show inflation accelerated to a two-year high.

“Investors are putting back on the bullish-dollar view,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “If the inflation numbers surprise significantly higher than what the market is expecting, that will be another negative factor that will weaken the ringgit.”

The currency depreciated 0.1 percent, a third day of losses, to 3.3288 per dollar as of 10:35 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It earlier touched 3.3358, the lowest level since Aug. 28.

The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major counterparts, increased 1.2 percent this year, while the ringgit declined 1.6 percent.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, rose four basis points, or 0.04 percentage point, to 7.44 percent. That’s below the 2013 average of 7.99 percent.

Market Intervention

Bank Negara Malaysia sold dollars and bought the ringgit today to limit the drop in the local currency, with offers to sell “modest” amounts of the greenback near the 3.3350 level, according to two traders based in Asia who asked not to be identified because they aren’t authorized to speak publicly. The central bank declined to comment when asked if policy makers intervened in the market today.

“We’ve seen some Bank Negara agent names in the past few sessions,” said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. “It’s to smooth out the volatility.”

Malaysia’s consumer prices rose 3.1 percent in December from a year earlier, compared with a 2.9 percent gain in November, according to the median estimate of economists in a Bloomberg survey before the data at 5 p.m. in Kuala Lumpur. That would be the fastest since November 2011.

Market speculation that Malaysia will increase interest rates may be “premature” as the pick-up in inflation is mainly due to administrative adjustments after the government raised fuel and electricity tariffs, DBS Group Holding Ltd. analysts including Singapore-based Irvin Seah wrote in a Jan. 21 report.

The yield on the 4.181 percent sovereign notes due in July 2024 climbed two basis points to 4.22 percent, according to data compiled by Bloomberg. The rate on the 3.172 percent securities maturing in July 2016 rose four basis points to 3.26 percent, the highest level since Jan. 7.

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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