Ringgit Posts Biggest Two-Day Gain Since 2013 on Fed Rate Stance

The ringgit posted its biggest two-day gain since September 2013 on further signs the U.S. central bank will refrain from tightening policy until the second half, easing concern that cash will flow out from Malaysian assets.

Federal Reserve Vice Chairman Stanley Fischer said Monday in New York there won’t be a “smooth upward path” for rates, with the first increase potentially late in 2015. The reprieve for the ringgit, which is Asia’s worst-performing currency in the past six months, could be temporary as HSBC Holdings Plc forecasts the nation’s central bank will cut its benchmark rate to 3 percent from 3.25 percent in the second quarter.

“Fischer reiterated what the Fed said last week,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore, referring to a central bank statement that it will go slow with the pace of increases once they start. “He certainly didn’t give the market any reason to turn around and buy the dollar.”

The ringgit rose 1.3 percent to 3.6490 a dollar in Kuala Lumpur, taking the two-day advance to 2.3 percent, the biggest since September 2013, data compiled by Bloomberg show. It earlier climbed a two-week high of 3.6460.

One-month implied volatility, a measure of exchange-rate swings used to price options, halted a two-day gain and dropped 11 basis points to 10.22 percent.

Malaysia may be vulnerable to fund outflows when U.S. rates rise as global investors own 29 percent of the nation’s government bonds, compared with 18 percent for Thailand, according to data from the respective central banks. The ringgit dropped 11 percent in the past six months due to a combination of falling oil prices and concern that state investment company 1Malaysia Development Bhd. will struggle to meet its debt obligations.

Malaysia’s five-year sovereign notes also climbed for a second day, with the yield falling two basis points, or 0.02 percentage point, to 3.61 percent, the lowest since Nov. 5. That compares with 1.39 percent for similar-maturity U.S. Treasuries. The federal funds rate is currently zero to 0.25 percent.

HSBC forecasts Malaysia’s economy will expand 4.8 percent in 2015, compared with 6 percent last year, citing lower oil prices and a moderation in private consumption when a 6 percent goods and services tax takes effect on April 1, economists including Su Sian Lim wrote in a report.

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