The ringgit rose for a fifth week, its longest winning streak since March, on speculation Malaysian policy makers will raise interest rates for a second time this year to protect savers and investors against inflation.
The currency appreciated 1.1 percent this month, Asia’s best performance after Indonesia’s rupiah and the Thai baht, as the central bank increased borrowing costs on July 10 for the first time in three years. Consumer-price gains quickened in June, official data showed last week. The one-year swap rate climbed one basis point this week to 3.7 percent, the highest level since 2008, data compiled by Bloomberg show.
“Prospects of another rate hike are driving the ringgit higher,” said Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking Corp. “Real yields are trending back in the ringgit’s favor in a tapering environment.”
The ringgit was steady today and strengthened 0.3 percent from July 18 to 3.1750 per dollar in Kuala Lumpur, data compiled by Bloomberg show.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 51 basis points, or 0.51 percentage point, to 4.95 percent for this week. It was little changed today.
Federal Reserve Chair Janet Yellen told U.S. lawmakers on July 15 that “increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned” should improvements in the labor market exceed projections. Employers in the world’s biggest economy added 288,000 workers in June from 224,000 in the preceding month, official data released on July 3 showed.
Malaysian inflation quickened to 3.3 percent in June from 3.2 percent the preceding month, the Statistics Department reported last week. The central bank raised its benchmark rate by 25 basis points to 3.25 percent on July 10. The next review is scheduled for Sept. 18.
Government bonds were little changed from a week ago. The yield on the 4.181 percent notes maturing in July 2024 was at 3.89 percent, according to data compiled by Bloomberg. It slipped one basis point today.