Ringgit Set for Biggest Weekly Loss Since January on Fed Outlook

The ringgit headed for its biggest weekly decline in two months as Federal Reserve officials raised their 2015 forecast for the U.S. benchmark interest rate, spurring a rally in the dollar.

The Fed, while indicating this week that the target rate will stay at zero to 0.25 percent in 2014, said it may reach 1 percent by the end of 2015, higher than a previous prediction of 0.75 percent. Bank Negara Malaysia trimmed the lower end of its estimate for 2014 economic growth this week, saying inflation will hurt household spending amid an uneven global recovery.

“The market’s factoring in better-than-expected U.S. growth and an earlier-than-expected Fed hike, so it’s probably a dollar strength story,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The recent rejig of the Malaysian growth forecast may have contributed slightly” to the currency’s drop, he said.

The ringgit retreated 0.8 percent this week, the steepest loss since the period ended Jan. 24, to 3.3082 per dollar as of 10:28 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It reached 3.3124 today, the weakest since Feb. 14, and was down 0.3 percent for the day.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 12 basis points, or 0.12 percentage point, from March 14 to 6.79 percent.

Inflation Data

The Bloomberg Dollar Spot Index, which tracks 10 of the world’s leading currencies, rose 0.8 percent this week, the biggest five-day gain since Jan. 17. It halted a three-week loss. The Federal Open Market Committee cut its monthly bond-purchase program by a further $10 billion to $55 billion.

Malaysia’s gross domestic product may increase 4.5 percent to 5.5 percent in 2014, after climbing 4.7 percent last year, according to the central bank’s annual report issued March 19. That’s wider than the Finance Ministry’s previous range of 5 percent to 5.5 percent. Inflation may come in between 3 percent to 4 percent, compared with 2.1 percent in 2013, it said.

The government may report at 5 p.m. local time today that consumer-price gains held at a two-year high of 3.4 percent in February, according to the median forecast of economists in a Bloomberg survey.

Malaysia’s sovereign bonds were little changed for the week and today, with the yield on the 4.181 percent notes due July 2024 steady at 4.11 percent, data compiled by Bloomberg show. Overseas investors held 29 percent of the nation’s debt, excluding bills, in January, compared with 17 percent in Thailand, central bank data showed, which may render the ringgit more vulnerable to an outflow of funds spurred by the Fed’s tapering.

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

To contact the editors responsible for this story: James Regan at jregan19@bloomberg.net Simon Harvey, Andrew Janes

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