Ringgit Falls Most in Eight Months as Fed Rate Talk Damps Demand

  • Measure of the greenback climbs from lowest level in a year
  • Tuesday's decline in Brent crude also weighs on the ringgit

Malaysia’s ringgit slumped by the most in eight months after Federal Reserve Bank of Atlanta President Dennis Lockhart said a U.S. interest-rate increase in June was “a real option.”

The comments sparked a surge in the greenback, with the Bloomberg Dollar Spot Index rising from the lowest level in a year. Brent crude hovered around $45 a barrel after falling more than 6 percent in the past two days, dimming the outlook for Malaysia’s finances as Asia’s only major net oil exporter. The weakness in the commodity price helped send the ringgit to its lowest level since March 29.

While Lockhart said two rate increases are possible this year, futures are only pricing in a 12 percent probability of such a move by June and 55 percent by the final meeting of 2016 in December. Mitul Kotecha, the head of Asian foreign-exchange and interest-rate strategy at Barclays Plc in Singapore, said the moves lower in regional currencies reflected more of a “market positioning shift” than a fundamental one.

“This partly reflects the dollar’s turnaround,” Kotecha said. “That, combined with the fact that there’s been a drop in commodity prices, has weighed on some currencies such as the ringgit.”

The ringgit dropped 1.5 percent to 3.9925 per dollar in Kuala Lumpur, the biggest decline since Sept. 7, according to prices from local banks compiled by Bloomberg. It’s now fallen 2.3 percent this quarter, after rising more than 10 percent in the previous three months.

1Malaysia Development Bhd., the state-owned investment company that defaulted on a $1.75 billion bond last week, is asking investors to hold off any request for early repayment on its Islamic debt, according to a person familiar with the matter. 1MDB has submitted a request to the trustee of 7.24 billion ringgit ($1.8 billion) of sukuk for a waiver on the "acceleration process" for the bonds, the person said, asking not to be identified because the information isn’t public.

The Minister of Finance Inc., the shareholder of 1MDB, said the board will resign May 31, according to an e-mailed statement on Wednesday, while Arul Kanda will remain company president.

Malaysian 10-year government bonds fell, with the yield rising two basis points to 3.90 percent, according to prices from Bursa Malaysia.

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