Malaysia’s ringgit posted its worst weekly loss of 2015 and stocks slid by the most since May as investors pulled funds amid a slump in oil and a political scandal involving Prime Minister Najib Razak.
The ringgit and the benchmark share index both fell more than 2 percent from July 31, with the currency trading at a 17-year low against the dollar just six weeks before the Federal Reserve decides on a possible increase in U.S. interest rates. Global funds have dumped $3 billion of equities in 2015, the biggest outflow since 2008, and also cut bond holdings in July.
Foreign-exchange reserves fell below $100 billion for the first time since 2010 last month, the central bank reported after the close of onshore trading on Friday. The 17 percent slide in the holdings this year has fueled speculation the central bank is buying ringgit to prop up Asia’s worst-performing currency, just as Najib faces the biggest political challenge of his six-year leadership amid a probe of fund transfers into his personal bank accounts.
“The ringgit is under pressure because of lower commodity prices and expectations of tightening by the Federal Reserve,” said Paul Mackel, head of global emerging-markets foreign-exchange research at HSBC Holdings Plc in Hong Kong. “People are quick to blame local factors, which we don’t think are the main drivers for the ringgit’s underperformance.”
The currency fell 2.6 percent this week to 3.9235 per dollar in Kuala Lumpur, the steepest five-day loss since December, according to prices from local banks compiled by Bloomberg. It declined earlier to 3.9305, the lowest level since September 1998.
The reserves dropped 3.8 percent in July to $96.7 billion. Twelve-month non-deliverable ringgit forwards showed little reaction the data, and were down 0.5 percent at 4.0768 per dollar as of 6:07 p.m. in Kuala Lumpur.
Overseas ownership of the nation’s government and corporate debt dropped 2.4 percent in July to 206.8 billion ringgit ($52.7 billion), the least since August 2012, official data released today show.
Societe Generale SA cut its third-quarter ringgit forecast to 4.10 from 3.80, and the year-end estimate to 3.90 from 3.70, strategists Jason Daw and Frances Cheung wrote in a report Thursday. The central bank is unlikely to try to protect 4 per dollar after failing to defend 3.8 in July, the level it was pegged at in 1998, the analysts said.
While a technical indicator signals the dollar may be poised to reverse its advance, the FTSE Bursa Malaysia KLCI Index of stocks was down 2.4 percent this week. The 10-year government bond yield rose 11 basis points from July 31 to 4.18 percent, the highest since the debt was sold in March, exchange prices show.
The ringgit has weakened 11 percent in 2015, trailing only the Brazilian real, Columbian peso and Turkey’s lira among 24 emerging-market currencies tracked by Bloomberg, as a 13 percent slide in Brent crude cuts earnings for the oil exporter. The dollar’s 14-day relative-strength index versus the ringgit climbed to 84 on Friday and has exceeded 70 all of this week, a threshold that is seen as a reversal pointer.