Ringgit Leads Asia Declines as U.S. Government Shutdown Looms

Malaysia’s ringgit fell the most in a week, leading losses in Asia, amid a U.S. budget stalemate that has brought the government to the brink of its first shutdown in 17 years. Sovereign bonds were little changed.

The House of Representatives voted 231-192 yesterday to stop many of the Affordable Care Act’s central provisions for one year, tying it to an extension of government funding through Dec. 15. Should the Senate reject the bill today, the government could be shut down from tomorrow. Malaysian bond yields are likely to rise as inflation accelerates after the authorities cut fuel subsidies this month, according to a Sept. 27 report from Barclays Plc analysts led by London-based Christian Keller.

“It looks like we’re not going to get any agreement between the two major parties in the U.S.,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “So the market is now pricing in a government shutdown from midnight.”

The ringgit declined 1 percent, the most since Sept. 23, to 3.2595 per dollar at 5 p.m. in Kuala Lumpur, the worst performance among Asia’s 11 most-traded currencies, according to data compiled by Bloomberg. It gained 0.8 percent in September, trimming its quarterly loss to 3.04 percent. One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose 73 basis points today to 10.97 percent.

Foreign Funds

The ringgit’s gain this month is the first since April, and comes after U.S. policy makers unexpectedly refrained from paring stimulus that has fueled demand for emerging-market assets. Global funds held 28 percent of Malaysian government bonds in July, compared with 31 percent for Indonesian notes and 18 percent for Thai securities, according to official data.

“The tapering delay is perceived purely as a delay rather than as a cancellation,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “The high foreign ownership of ringgit bonds is still a weak spot.”

Malaysian consumer prices increased 1.9 percent in August from a year earlier, after rising 2 percent in July, the fastest pace in 16 months, according to official figures. The government will announce September data on Oct. 23.

Prime Minister Najib Razak increased prices of gasoline and diesel on Sept. 3. The move will help the government save about 1.1 billion ringgit ($337 million) this year and 3.3 billion ringgit annually in the future by reducing state subsidies, he said.

The yield on the 3.48 percent government notes due March 2023 was little changed at 3.76 percent, according to data compiled by Bloomberg. The rate fell 33 basis points in September, the biggest monthly drop since the notes were issued in March. It has climbed 13 basis points this quarter.

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