Malaysia’s ringgit rose to a one-month high on speculation the Federal Reserve will delay a reduction in bond purchases until the debt-ceiling debate is totally resolved. Sovereign bonds advanced.
President Barack Obama signed into law a measure ending the 16-day government shutdown and extending the nation’s borrowing authority until early next year. The deal funds the government at Republican-backed spending levels through Jan. 15, 2014, and suspends the debt limit through Feb. 7. Malaysia may unveil measures in the Oct. 25 budget to trim its fiscal deficit to 3 percent of gross domestic product from 4.5 percent, Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp., wrote in a research note yesterday.
“There was a broad sell-off in the dollar,” said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. “Tapering might not take place until there’s some kind of resolution on the debt ceiling on a more permanent basis.”
The ringgit strengthened 0.8 percent to 3.1502 per dollar at the close in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It reached 3.1467, the strongest since Sept. 20. The Bloomberg U.S. Dollar Index fell 0.6 percent, adding to yesterday’s 0.1 percent drop.
China’s Dagong Global Credit Rating Co. downgraded the local- and foreign-currency credit ratings of the U.S. to A-from A, maintaining a negative outlook, citing concern about the deterioration on the U.S. government’s solvency, according to a statement from the company today.
The greenback came under renewed selling pressure after the downgrade as it highlighted concern about a potential similar move by Fitch Ratings, according to a research report from Citigroup Inc. today. Fitch placed the U.S.’s AAA credit grade on rating watch negative yesterday.
Should Malaysia announce fiscal consolidation measures in next week’s budget, it would help the ringgit break out of the 3.15 to 3.25 per dollar range, according to Westpac’s Cavenagh. A definitive push below 3.15 would target a move back toward 3.08, he said in the research note.
“In the near term, risk sentiment is positive because of the deal being struck,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “But, at the same time, when you look at the details of the deal, it’s more like kicking the can down the road.”
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 60 basis points to 8.88 percent.
The yield on the 3.172 percent notes due July 2016 dropped six basis points, or 0.06 percentage point, to 3.17 percent, according to data compiled by Bloomberg. That’s the lowest level since June 17.