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Ringgit Declines Most in Three Months as Gains Deemed Excessive

Malaysia’s ringgit fell the most in three months on speculation last week’s biggest gain since 1998 was excessive. Government bonds retreated.

Asian markets rallied last week after Federal Reserve Chairman Ben S. Bernanke unexpectedly refrained from cutting stimulus. Fed Bank of St. Louis President James Bullard said Sept. 20 that the central bank may make a small adjustment to its $85 billion of monthly bond purchases in October. Malaysia’s currency dropped in the past four months, partly due to a 70 percent decrease in the current-account surplus to 2.6 billion ringgit ($813 million) in the second quarter.

“With the sharp overshooting of dollar-ringgit, people are adjusting back again to the demand for the dollar,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The domestic story creates too many question marks. It’s all related to the longer-term fiscal sustainability of the country.”

The ringgit lost 1 percent in the biggest decline since June 20 to 3.1983 per dollar as of 4:52 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency climbed 4 percent last week in its best performance since September 1998. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped seven basis points, or 0.07 percentage point, to 9.79 percent.

Bernanke said last week he wanted to see more evidence of a recovery in the world’s largest economy before starting to taper the bond purchases.

The ringgit may weaken to 3.21 per dollar this week on renewed concern the Fed will trim stimulus next month after Bullard’s statement, said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore.

The yield on Malaysia’s 3.26 percent sovereign notes due March 2018 climbed three basis points to 3.48 percent, according to data compiled by Bloomberg.

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