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Ringgit Weakens as U.S. Fiscal Cliff Concern Damps Risk Appetite

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Nov. 8 (Bloomberg) -- Malaysia’s ringgit fell, approaching a three-week low, as concern that U.S. President Barack Obama will struggle to negotiate tax increases and avert spending cuts damped appetite for riskier assets.

Obama’s re-election will set up a showdown with the Republican-controlled House over the budget, with the so-called fiscal cliff of more than $600 billion in expiring tax cuts and automatic reductions in expenditure due to take effect in January unless Congress acts before then. Government bonds declined before a monetary policy meeting today, at which Bank Negara Malaysia is forecast to leave its benchmark interest rate at 3 percent, according to all 17 economists surveyed by Bloomberg News.

“The focus shifted very quickly from the presidential election to the fiscal cliff,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “The potential for gridlock in terms of averting the fiscal cliff is really weighing on markets.”

The ringgit declined 0.5 percent to 3.0600 per dollar as of 4:05 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.0706 on Nov. 6, the weakest level since Oct. 15. One-month implied volatility, a measure of exchange-rate swings used to price options, held at 5.50 percent.

Malaysian industrial production rose 4.9 percent in September from a year earlier, after contracting a revised 0.2 percent the previous month, a government report showed today. Economists expected a 0.6 percent gain, based on the median estimate in a Bloomberg survey of economists.

Government bonds fell. The yield on the 3.314 percent notes due October 2017 climbed three basis points, or 0.03 percentage point, to 3.21 percent, according to Bursa Malaysia.

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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