Ringgit Falls as Fed Officials Whipsaw Markets on Rate Timing

  • BNP Paribas says ringgit's rebound will be short-lived
  • U.S. jobless claims for last week beat economists' estimates

Malaysia’s ringgit fell by the most in almost four weeks as another Federal Reserve official helped whipsaw markets by saying interest rates may still rise this year, scuttling October’s rally on bets they wouldn’t.

The currency has rebounded this month from a 17-year low after U.S. employment figures on Oct. 2 missed estimates. Futures contracts have since pared the odds for a Fed rate increase by December to 31 percent from 43 percent. A report Thursday painted a mixed picture as jobless claims declined and Fed Bank of New York President William C. Dudley said he favored raising borrowing costs this year if the economy performed in line with his forecast.

“Whenever there’s better jobs data, people would tend to think the Fed may still be able to do something this year,” said Choong Yin Pheng, senior manager for bonds and economic research at Hong Leong Bank Bhd. in Kuala Lumpur. “After a strong rally, a consolidation in the ringgit shouldn’t be a surprise.”

The currency dropped 1.4 percent to 4.1788 a dollar in Kuala Lumpur, after gaining 1.5 percent on Thursday, according to prices from local banks compiled by Bloomberg. Friday’s decline was the biggest since Sept. 21 and took the week’s loss to 1.1 percent. It rounded out the biggest five-day advance since 1998 last week.

Fed Governor Daniel Tarullo told the CNBC television channel this week that he doesn’t currently favor raising interest rates in 2015, after fellow Governor Lael Brainard made the case for patience.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, climbed 0.3 percent on Friday. It advanced 0.2 percent on Thursday after a report showed American applications for unemployment benefit decreased last week to match the fewest in four decades. 

A rally in the ringgit will prove short-lived as the factors that made it Asia’s worst performer this year including lower oil prices and slowing Chinese growth still persist, said Mark Capstick, a London-based fund manager at BNP Paribas Investment Partners, which oversees 532 billion euros ($605 billion). The currency has appreciated 5.2 percent in October, following five straight months of losses.

Malaysian government bonds rose, with the five-year yield dropping four basis points to 3.71 percent, according to prices from Bursa Malaysia.

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