Ringgit Drops Most in 2 Months, Bonds Fall on Fed Taper Outlook

Malaysia’s ringgit fell by the most in two months after minutes of the Federal Reserve’s last meeting renewed speculation it will trim monetary stimulus, a policy that’s driven inflows to emerging-market assets.

Fed officials said they might reduce their $85 billion in monthly bond purchases “in coming months” as the economy improves, according to minutes of the Oct. 29-30 gathering released late yesterday in Washington. Moody’s Investors Service raised the outlook for Malaysia’s credit rating to positive from stable yesterday, citing improved prospects for the government’s finances. Ten-year sovereign bonds dropped, sending the yield to an 11-week high.

“It’s more of a strong dollar story because of heightened tapering expectations,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “Otherwise, the ringgit would have stayed stable or even appreciated slightly because of the Moody’s upgrade.”

The ringgit weakened 0.7 percent to 3.2050 per dollar in Kuala Lumpur, the biggest drop since Sept. 30, according to data compiled by Bloomberg. That was the lowest close since Nov. 13. The currency declined 1.5 percent in November, trimming this quarter’s gain to 1.7 percent, the best performance in Asia.

One-month non-deliverable forwards declined 0.9 percent to 3.2127 per dollar, the biggest loss since August. The contracts traded 0.3 percent weaker than the spot rate.

While U.S. employers added 204,000 workers to payrolls last month, more than the 120,000 estimate, the central bank probably won’t taper its debt purchases until March, according to the median of 32 economists’ estimates in a Bloomberg News survey conducted Nov. 8. The next meeting is Dec. 17-18.

Bond Auction

A pick up in employment could increase the chance of a reduction in bond purchases next month, Fed Bank of St. Louis President James Bullard, a voter on policy this year who has backed record stimulus, said in a Bloomberg Television interview yesterday.

Moody’s cited improved prospects for fiscal consolidation in Malaysia, economic reforms and macroeconomic stability for its decision to raise the outlook on the nation’s A3 rating, the fourth-lowest investment grade.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, rose 23 basis points, or 0.23 percentage point, to 8.36 percent.

Malaysia sold 4 billion ringgit ($1.2 billion) of 2024 bonds today at a yield of 4.44 percent, with bids amounting to 1.68 times the amount on offer. The yield on the government’s existing 3.48 percent notes due in March 2023 climbed 10 basis points to 4.06 percent, the highest level since Aug. 30, data compiled by Bloomberg show.

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