Ringgit Weakens as Commodities Retreat Crimps Revenue Outlook

  • Bloomberg Commodity Index slid most in a month on Monday
  • Malaysia Prime Minister Najib to unveil 2016 budget on Friday

Malaysia’s ringgit dropped to its lowest level in almost two weeks on concern falling raw-materials prices will hurt government income and widen the budget deficit.

The Bloomberg Commodity Index Index declined 1.4 percent Monday, the biggest loss in a month, after China reported industrial output and fixed-asset investment data for September that missed economist estimates. Malaysia’s government gets 22 percent of its revenue from oil-related exports and Prime Minister Najib Razak is scheduled to deliver his 2016 annual budget plan on Friday.

“The weakening trend of the old part of the Chinese economy, underlined by the downside surprise in the industrial production and fixed-asset investment, weighed on commodity prices such as crude oil and base metals,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “This is negative for commodity currencies such as the ringgit.”

The ringgit retreated 1.4 percent to 4.2653 a dollar in Kuala Lumpur after losing 2.1 percent over the previous two trading days, according to prices from local banks compiled by Bloomberg. The currency sank as low as 4.2853 on Tuesday, the weakest level since Oct. 7.

While China’s gross domestic product increased 6.9 percent in the third quarter, beating the median estimate in a Bloomberg survey for a 6.8 percent gain, its industrial-output growth of 5.7 percent fell short of the 6 percent predicted. The country is the world’s second-largest economy and No. 1 consumer of energy, metals and grains.

The 2016 budget will be “one of the most difficult,” Prime Minister Najib was quoted as saying in a New Straits Times report on Monday. The premier is seeking to trim the fiscal shortfall to 3.2 percent of gross domestic product this year from 3.5 percent in 2014. Malaysia is Asia’s only major net exporter of crude oil and is also the world’s second-biggest producer of palm oil, which despite recovering some ground from a 2015 low in August is still down about 7 percent from this year’s peak in September.

Malaysia’s government bonds maturing in September 2025 fell, pushing the yield up by one basis point to 4.13 percent, prices from Bursa Malaysia show.

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