Ringgit Has Worst Month in a Year on Bets Fed to Trim Stimulus

Malaysia’s ringgit had its biggest monthly drop in a year and sovereign bonds declined as speculation the Federal Reserve will reduce stimulus damped demand for emerging-market assets.

U.S. consumer confidence climbed to the highest level in more than five years and home prices advanced by the most in seven, according to reports after Fed Chairman Ben S. Bernanke said the pace of debt purchases could be eased if the economy showed sustained signs of improvement. Malaysia’s gross domestic product expanded at the slowest pace since 2009 in the first quarter, a government report showed this month.

“The market is pricing in the fact that the Fed may pull back its stimulus soon,” said Andy Ji, a foreign-exchange strategist in Singapore at Commonwealth Bank of Australia. “Whether it’s true is still up for debate.”

The ringgit fell 1.7 percent from April 30 to 3.0935 per dollar as of 4:31 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. That was the most since a 4.7 percent loss in May 2012. The currency declined 2 percent this week and 0.7 percent today. It touched 3.0977 today, the weakest level since April 1.

Malaysia’s gross domestic product increased 4.1 percent in the first quarter from a year earlier, the least since a 1.1 percent contraction in the three months through September 2009.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, fell 60 basis points, or 0.6 percentage point, this month to 7.81 percent. It climbed 33 basis points today and 39 basis points this week.

Yuan Drops

China’s yuan fell 0.06 percent today to 6.1356, according to China Foreign Exchange Trade System prices.

“We’ve actually seen the renminbi underperforming,” said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Given that China is becoming a major force in the world and a lot of the Asian economies compete against China to some extent, a lot of the Asian currencies tend to track the renminbi.”

The yield on the 3.26 percent Malaysian government bonds due March 2018 increased 13 basis points this month and 14 basis points this week to 3.28 percent, according to data compiled by Bloomberg. It was little changed today.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE