Ringgit Falls as Commodities Drop Cuts Export Earnings Outlook

Updated on

The ringgit fell the most in more than two weeks as a decline in commodity prices erodes the outlook for Malaysia’s export earnings.

The currency has come under pressure in the past 12 months amid a drop in Brent and palm oil, Malaysia’s key exports. Prospects the U.S. will raise interest rates and concern about the finances of a state investment company have exacerbated losses for the ringgit, which has fallen the most in Asia this year. Oil declined and the dollar strengthened overnight on reports showing an unexpected pick up in U.S. fuel inventories and accelerating new home sales.

“Commodity prices came under pressure, especially crude oil, in response to the build-up in inventories,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “The dollar found some support as well from U.S. housing numbers.”

The ringgit dropped 0.4 percent to 3.8063 a dollar in Kuala Lumpur, the biggest loss since July 6, prices from local banks compiled by Bloomberg show. It fell 8.1 percent this year and reached a 16-year low of 3.8130 in July.

Data on the nation’s foreign-exchange reserves due later Thursday may provide an indication of whether the central bank intervened after the ringgit weakened beyond 3.8 a dollar, the level it was pegged at during the 1997-98 Asian financial crisis before the fixing was abandoned in 2005.

The holdings have declined 9.1 percent this year to $105.5 billion as of June 30, according to figures from Bank Negara Malaysia. The data today are for the two weeks to July 15 and Bank of Singapore’s Sim said they will unlikely show a significant drop.

“The perception here is that there has been some smoothing by the authorities, but the sense is that it’s confined to smoothing to avoid excessive volatility rather than drawing a line in the sand,” said Sim.

Malaysia’s government bonds were mixed. The 10-year yield fell five basis points to 3.91 percent and the yield on notes due in 2017 was steady at 3.20 percent, prices from Bursa Malaysia show.