Ringgit Near One-Week Low as U.S. Data Boosts Fed Tapering Odds

Malaysia’s ringgit traded near a one-week low after a U.S. factory index rose to the highest in more than two years, bolstering the case for the Federal Reserve cutting stimulus that has fueled fund flows to emerging markets.

The ISM manufacturing gauge increased to 55.7 in August from 55.4 a month earlier, official data showed yesterday. Fifty is the dividing line between expansion and contraction. Overseas investors sold a net 6.8 billion ringgit ($2.1 billion) of Malaysian stocks in August, exchange data show. Government bonds were little changed.

The ringgit dropped as much as 0.6 percent to 3.3068 per dollar, the weakest level since Aug. 29, before trading at 3.2860 as of 4:25 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency has lost 3.8 percent this quarter, the worst performance among Asia’s 11 most-traded currencies after India’s rupee and Indonesia’s rupiah.

“The better manufacturing data adds to the U.S. economic recovery and that strengthens the case for cutting bond purchases,” said Yeah Kim Leng, chief economist at RAM Holdings Bhd. in Kuala Lumpur. “We expect the ringgit to reach 3.2 to the dollar by year-end on the premise of a recovery in global demand led by advanced economies.”

Malaysia’s central bank will hold its benchmark overnight policy rate at 3 percent, according to a Bloomberg survey before a policy review tomorrow.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, surged 29 basis points, or 0.29 percentage point, to 9.27 percent.

The yield on the 3.48 percent government bonds maturing March 2023 increased one basis point to 4.01 percent, according to data compiled by Bloomberg.

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