Ringgit Touches Five-Month Low as U.S. Recovery Boosts Dollar

Malaysia’s ringgit touched the weakest level since August on speculation investors are favoring the dollar because of an improving outlook for the U.S. economy.

The currency pared its losses after the central bank intervened to limit its decline, according to two Asia-based traders who asked not to be identified because they aren’t authorized to speak publicly. Malaysian inflation accelerated to the fastest pace in two years last month, a report showed today. The government forecasts the economy will grow 5 percent to 5.5 percent in 2014, compared with 4.5 percent to 5 percent last year. The 2013 data are due Feb. 12.

“Investors are putting back on the bullish-dollar view,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “We aren’t expecting any policy shift until we start to see further strengthening in Malaysian growth,” he said, referring to the possibility of interest-rate increases.

The currency was little changed at 3.3238 per dollar in Kuala Lumpur, compared with 3.3255 yesterday, according to data compiled by Bloomberg. It touched 3.3358 earlier, the weakest level since Aug. 28. The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major counterparts, increased 1.3 percent this year, while the ringgit declined 1.4 percent.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, fell two basis points, or 0.02 percentage point, to 7.38 percent. That’s below the 2013 average of 7.99 percent.

Market Intervention

Bank Negara Malaysia sold dollars and bought the ringgit today to limit the drop in the local currency, with offers to sell “modest” amounts of the greenback near the 3.3350 level, according to the two traders. The central bank declined to comment when asked if policy makers intervened today.

“We’ve seen some Bank Negara agent names in the past few sessions,” said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. “It’s to smooth out the volatility.”

Consumer prices rose 3.2 percent in December from a year earlier, the most since November 2011, according to government data released today. The median estimate of economists in a Bloomberg survey was for a 3.1 percent increase.

Market speculation that Malaysia will raise interest rates may be “premature” as the pick-up in inflation is mainly due to administrative adjustments after the government increased fuel and electricity tariffs, DBS Group Holding Ltd. analysts including Singapore-based Irvin Seah wrote in a Jan. 21 report.

Bonds Drop

The International Monetary raised its 2014 growth forecast for the U.S. economy to 2.8 percent from 2.6 percent yesterday, and boosted projections for developing Asia to 6.7 percent from 6.5 percent.

The yield on Malaysia’s 4.181 percent sovereign notes due July 2024 climbed four basis points to 4.22 percent, according to data compiled by Bloomberg. The rate on the 3.172 percent securities maturing in July 2016 rose three basis points to 3.25 percent, the highest level since Jan. 7.

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