Ringgit Forwards Strengthen on Improved China Economic Outlook

Malaysian ringgit forwards climbed from their weakest level in more than seven months as data suggested China’s economy is improving, brightening the outlook for Asian exports. Government bonds were little changed.

China’s foreign direct investment gained 6.3 percent in February from a year earlier, the first increase in nine months, government figures showed today. The Asian nation was the second-biggest buyer of Malaysian goods in 2012. A Reuters report suggested Cypriot lawmakers are likely to reject a tax on bank deposits today, after euro-area finance ministers told officials this week to raise 5.8 billion euros ($7.5 billion) from depositors to unlock emergency loans.

“China is more important than ever,” said Thomas Harr, the head of Asia local markets strategy at Standard Chartered Plc in Singapore. “There’s recognition that the European situation will not go out of control and that’s a reason why we will not see a massive sell-off in Asia.”

Twelve-month non-deliverable forwards strengthened 0.3 percent, the first gain in five days, to 3.1836 per dollar as of 4:55 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The contracts touched 3.2015 yesterday, the weakest level since July 30.

The contracts to fix an exchange rate in a year’s time were at a 1.9 percent discount to the spot rate, which advanced 0.3 percent to 3.1212. Non-deliverable forwards are settled in dollars. One-month implied volatility in the ringgit, a measure of expected moves in exchange rates used to price options, rose six basis points, or 0.06 percentage point, to 7.30 percent.

‘Limited Downside’

Cyprus’ parliament probably won’t pass a law taxing deposits, plan that’s prompted banking turmoil, missing a condition for an international bailout, according to the Reuters report citing government spokesman Christos Stylianides.

“The pressure seems to be quite united in telling Cyprus to brace for a cut” un deposits, said Enrico Tanuwidjaja, an economist in Singapore at Royal Bank of Scotland Group Plc. “There seems to be a limited downside reaction but we still can’t say for certain the Cyprus parliament will not surprise on the downside.”

Crude oil futures in New York traded near a one-month high. Investors should buy Malaysia’s ringgit as a likely rise in the commodity will boost the economic outlook for the petroleum-exporting nation, according to Credit Agricole Private Banking.

Malaysian consumer prices probably climbed 1.5 percent in February from a year earlier, after rising 1.3 percent the previous month, according to the median estimate of economists in a Bloomberg survey ahead of a government report tomorrow.

The yield on the 3.26 percent sovereign notes due March 2018 held at 3.23 percent, according to data compiled by Bloomberg.