Ringgit Set for Weekly Drop on China Slowdown, Ukraine Tensions

Malaysia’s ringgit headed for its biggest weekly loss since January as tensions in Ukraine and a slowdown in China’s manufacturing reduced demand for emerging-market currencies.

A Purchasing Managers’ Index of China’s factory output contracted for a fourth month in April, a preliminary reading from HSBC Holdings Plc and Markit Economics showed this week, dimming the outlook for Malaysian exports to its third-biggest overseas market. U.S. Secretary of State John Kerry warned that Russia was running out of time to comply with an accord aimed at easing tensions in Ukraine, as Russian forces began new military exercises on the two countries’ border.

“Overnight, there was a bit of concern on Ukraine,” said Saktiandi Supaat, the Singapore-based head of currency research at Malayan Banking Bhd. “If demand from China doesn’t materialize as expected, it should weigh a bit on emerging-market currencies.”

The ringgit retreated 1 percent this week and 0.1 percent today to 3.2740 per dollar as of 10:24 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It fell to 3.2770 earlier today, the lowest level since April 7. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 14 basis points, or 0.14 percentage point, from April 18 and seven basis points today to 6.57 percent.

Morgan Stanley has a neutral stance on the ringgit, with the currency’s near-term direction versus the dollar likely to be driven by sentiment on China and the global economy, according to a research note yesterday.

China’s preliminary PMI reading of manufacturing from HSBC and Markit Economics was 48.3 in April, matching the median estimate of economists surveyed by Bloomberg News, holding below the 50 dividing line between expansion and contraction.

Malaysia reported this month that overseas shipments to China rose 23.6 percent in February from a year earlier, the slowest pace in five months.

The yield on Malaysia’s 4.181 percent sovereign bonds due July 2024 was steady this week and today at 4.09 percent, data compiled by Bloomberg show.

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: Amit Prakash at aprakash1@bloomberg.net Simon Harvey, Andrew Janes

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