Ringgit Gains Most in Five Weeks as Recent Drop Seen Excessive

Malaysia’s ringgit climbed the most in five weeks after some investors judged its recent decline to be excessive. Government bonds fell.

The ringgit has dropped 2.2 percent in the last three days and touched 3.1615 yesterday, the weakest level since July 27, on speculation the Federal Reserve will pare its monetary stimulus, slowing inflows into emerging-market assets. The dollar’s 14-day relative strength index against the Malaysian currency was near the 70 level, a threshold that signals the greenback may weaken, data compiled by Bloomberg show.

The ringgit strengthened 0.6 percent, the most since May 8, to 3.1328 per dollar as of 5:19 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell 25 basis points, or 0.25 percentage point, to 9.11 percent.

“A lot of these moves have been quite overdone so markets are reassessing their position,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. “I don’t think the slightly bearish backdrop for Asian currencies is behind us yet.” He predicts the ringgit is likely to trade in a 3.12 to 3.16 per dollar range this week.

Malaysian exports fell 3.3 percent in April from a year earlier, its third month of contraction, and less than the 0.4 percent gain forecast in a Bloomberg survey, a report showed last week.

Fed Chairman Ben S. Bernanke said last month $85 billion of monthly bond-buying, known as quantitative easing, could be scaled back if there are signs of sustained improvement in the U.S. labor market. A “modest adjustment downward” in debt purchases is possible as “early as this summer”, San Francisco Fed President John Williams said last week.

The yield on the 3.26 percent government bonds due March 2018 climbed one basis point to 3.26 percent, according to data compiled by Bloomberg.

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