Malaysia’s ringgit strengthened the most this year after some investors judged its recent decline to be excessive.
The currency fell 1.6 percent in 2014 and touched 3.3472 per dollar on Jan. 27, the weakest level since May 2010, as the Federal Reserve pares stimulus that has spurred fund flows to emerging markets. The dollar’s 14-day relative strength index against the currency exceeded the 70 level on Jan. 30, the ringgit’s last trading day, a threshold that signals the greenback may weaken, according to data compiled by Bloomberg.
“The market has probably been caught very long on dollars,” said Thomas Harr, Singapore-based head of local market strategy at Standard Chartered Plc. “That is clearly what is reversing now. It’s very much a positioning adjustment. I think you will see more weakness in Asian currencies.”
The ringgit advanced 0.6 percent from Jan. 30 to 3.3288 per dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. That was the biggest gain since Dec. 31. Malaysian financial markets were shut on Jan. 31 and Feb. 3 for public holidays.
One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, declined seven basis points to 7.83 percent.
Five-year credit-default swaps on Malaysian debt dropped two basis points to 130 in New York after reaching a four-month high of 132 yesterday, according to data provider CMA. The cost of insuring Malaysian sovereign debt had climbed after indicators signaled slowing growth in China and the U.S., two of the nation’s biggest overseas markets.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
The U.S.’s Institute for Supply Management said yesterday its factory index declined to 51.3 in January, the lowest since May, contributing to the sharpest drop in the S&P 500 stocks gauge in seven months. A Chinese manufacturing index fell to a six-month low in January, a Feb. 1 report showed.
“We’ve been having this risk-off sentiment particularly hurting emerging markets,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “That risk was further compounded by a bad ISM manufacturing read from the U.S. It doesn’t bode well for Malaysia’s overall economic growth.”
The yield on Malaysia’s five-year government notes fell seven basis points, or 0.07 percentage point, from Jan. 30 to 3.71 percent, according to data compiled by Bloomberg.