Malaysia's Ringgit Rises a Second Day as Brent Crude Stabilizes

  • Brent rose above $44 Tuesday, before retreating on Wednesday
  • Weak dollar supports ringgit after poor U.S. housing starts

Malaysia’s ringgit posted its biggest two-day rally in three weeks as Brent crude surged overnight, brightening the outlook for the oil exporter’s finances. The currency pared gains as the commodity erased some of that increase on Wednesday.

The ringgit earlier rose to near an eight-month high as Brent climbed above $44 a barrel on Tuesday, a level it breached last week for the first time since December. China’s stabilizing economy is also lending support to the currency after the World Bank cut Malaysia’s growth forecast. A measure of the greenback was little changed after falling to a 10-month low on disappointing U.S. housing data. Futures show just 16 percent odds of a Federal Reserve rate hike by June.

“It’s the combination of a very dovish Fed and the improving growth outlook in China,” said Mirza Baig, the head of Asia Pacific foreign-exchange and interest-rate strategy in Singapore at BNP Paribas SA. “That’s creating this context for a weak dollar and strong risk sentiment, and strength in the ringgit.”

Malaysia’s currency appreciated 0.6 percent to 3.8690 per dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It earlier rose as much as 1.1 percent to 3.8503, shy of the 3.8465 reached last week that was the strongest since August. The ringgit has overtaken the yen as the region’s best performer this year, having advanced 11 percent.

Default Swaps

Brent rose 2.6 percent to $44.03 on Tuesday and touched a high for the day of $44.50. While prices retreated 1.9 percent on Wednesday to $43.18, they are still above the year’s average of $36.40 and the 12-year low of about $27 in January.

A government report on Wednesday showed Malaysian inflation eased to 2.6 percent in March from a seven-year high of 4.2 percent the previous month. That was below the median estimate in a Bloomberg survey for a reading of 3.4 percent.

Last week, the World Bank lowered its 2016 growth forecast for Malaysia by 0.3 percentage point to 4.4 percent. Bank Negara Malaysia Governor Zeti Akhtar Aziz said in Washington over the weekend that there’s “a high degree of confidence” the nation will meet its 2016 expansion target of 4 percent to 4.5 percent.

Five-year credit-default swaps climbed three basis points to 165, the highest since March 9, according to prices from CMA. The contracts rose 11 basis points on Monday, the most in four weeks, after Abu Dhabi’s sovereign wealth fund said state investment company 1Malaysia Development Bhd. failed to make a payment of more than $1 billion in connection with a loan it made last year and is effectively in default. 1MDB President Arul Kanda said in an interview Tuesday that he sees an “amicable resolution” to the matter.

Ten-year sovereign bonds advanced, pushing the yield down one basis point to 3.80 percent, according to prices from Bursa Malaysia.

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