Ringgit Completes Best Week Since October as Data Boost Outlook

Malaysia’s ringgit had its biggest weekly gain since October after trade data signaled a sustained recovery in Southeast Asia’s third-biggest economy.

Exports exceeded imports by the most in 20 months in November, while factory output accelerated to a four-month high, according to official figures released this week. U.S. employers added more workers than projected in December and jobless benefit claims dropped last week, reports showed, backing the case for the Federal Reserve to continue trimming stimulus.

“The positive local data are helping the ringgit a lot, even though Fed tapering noises are still very real,” said Choong Yin Pheng, senior manager for bond and economic research at Hong Leong Bank Bhd. in Kuala Lumpur. “That boosted the outlook for the new year.”

The ringgit strengthened 0.6 percent since Jan. 3, the biggest five-day gain since the week ended Oct. 18, to 3.2695 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. The currency advanced 0.2 percent today. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 65 basis points this week and one basis point today to 6.98 percent.

Wider Surplus

Malaysia’s trade surplus widened to 9.7 billion ringgit ($3 billion) in November, the biggest gap since March 2012, a Jan. 8 report showed. Industrial production increased 4.4 percent from a year earlier, the fastest growth since July, according to official data released yesterday.

The nation recorded a current-account surplus of 9.8 billion ringgit in the third quarter compared with 2.6 billion ringgit in the previous three months. The government aims to shrink its fiscal deficit to 3.5 percent of gross domestic product in 2014 from 4 percent in 2013, according to an October report from the finance ministry.

The ringgit is stable and the nation needs to continue strengthening its economy and financial system, central bank Governor Zeti Akhtar Aziz said in an interview in Putrajaya, outside Kuala Lumpur, today.

The Malaysian currency will climb to 3.15 per dollar in 12 months, with the improvement in the nation’s trade balance supporting the forecast for a stronger current-account position, Goldman Sachs Group Inc. analysts including Singapore-based Mark Tan wrote in a Jan. 8 research note.

Rating Downgrade

Malaysia could move closer to a rating downgrade if a persistent current-account deficit emerges alongside a fiscal shortfall, according to a Fitch Ratings report released today.

Fed officials said in December that they will cut monthly bond purchases from January to $75 billion from $85 billion. Policy makers will trim stimulus in $10 billion increments over the next seven meetings before ending them in December, according to a Bloomberg survey on Dec. 19. The Federal Open Market Committee will announce its next policy decision on Jan. 30.

The yield on Malaysia’s 3.26 percent sovereign notes due March 2018 fell 11 basis points this week, the biggest five-day drop since the period ended Oct. 18, to 3.59 percent, according to data compiled by Bloomberg. It was little changed today.

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