Ringgit Trades Near Lowest Since July 2012 Ahead of Fed Decision

Malaysia’s ringgit traded near the lowest since July 2012 and the five-year bond yield climbed to a three-month high as investors await clues as to when the Federal Reserve will start reducing monetary stimulus.

Fed Chairman Ben S. Bernanke will speak to reporters today at the end of a two-day meeting of U.S. policy makers. On May 22, he signaled that the central bank’s monthly asset purchases could be pared if the jobs market shows sustainable improvement. Foreign investors hold 31.7 percent of outstanding Malaysian debt, compared with 34.8 percent for Indonesia and 18.9 percent for Thailand, according to a June 10 report from BNP Paribas SA.

“The biggest concern in Malaysia is the very large holdings of Malaysian bonds by the offshore community,” said Rob Ryan, a currency strategist at Royal Bank of Scotland Plc in Singapore. “Ahead of the Fed, I don’t think the ringgit has too far to go today.”

The ringgit was little changed at 3.1525 per dollar as of 4:45 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.1680 today, the lowest level since July 26, and has weakened 4.3 percent since May 22. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell 10 basis points, or 0.10 percentage point, to 9.11 percent.

The currency may appreciate to 3.07 per dollar by year-end, although any tapering of Fed stimulus is likely to impact the country, David Fernandez, Singapore-based head of research for emerging Asia at JPMorgan Chase Bank, said at a Bloomberg Link event in London yesterday.

Malaysian inflation probably held at an 11-month high of 1.7 percent in May, according to the median forecast of economists in a Bloomberg survey ahead of a government report due today.

The yield on the 3.26 percent notes due March 2018 climbed four basis points to 3.32 percent, the highest since the bonds were sold in March, according to data compiled by Bloomberg.

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