Ringgit Falls to 10-Week Low as Oil’s Drop Compounds Fed Bets

  • Singapore orders BSI’s unit to shut amid probe related to 1MDB
  • Brent retreats a fifth day in longest stretch in four months

Malaysia’s ringgit fell to a 10-week low as a decline in energy prices clouded the outlook for the oil exporter’s finances. Bonds dropped amid rising odds for a U.S. interest-rate increase.

The ringgit led losses in emerging-market currencies and stocks retreated with most of Asia. Brent crude extended its decline to a fifth day, the longest stretch in four months. Malaysia loses 450 million ringgit ($109 million) for every $1 drop in oil, Prime Minister Najib Razak said in April. 

In a probe related to troubled state investment company 1Malaysia Development Bhd., Singapore’s central bank ordered BSI SA’s unit in the city-state to shut down for breaches of money laundering rules. The Swiss Attorney General said it also began criminal proceedings against the financial institution based on information from an investigation into 1MDB. The MAS referred six senior BSI executives to the public prosecutor.

The drop in the ringgit “started since earlier in the day, which seems to be more related to the commodity-market movement” rather than the announcement involving 1MDB, said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd. “It has more to do with the broader market where the dollar has strengthened and there’s a bit of fear that the Fed will hike.”

The ringgit declined 1 percent to 4.1235 per dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It depreciated to 4.1298, the weakest since March 16. The currency is Asia’s worst performer this month, while a gauge of the greenback has strengthened more than 3 percent since the end of April.

1MDB Dispute

Federal Reserve Bank of Philadelphia President Patrick Harker said Monday he could see two to three U.S. rate hikes in 2016. His San Francisco counterpart John Williams said on Fox News the June meeting could be “appropriate” for an increase.

The odds of a Fed rate increase in June climbed to 32 percent from 20 percent a month ago, futures contracts show. The chance of a July hike moved up to 54 percent from 34 percent.

Malaysia’s five-year government bond yield rose six basis points to 3.44 percent, the biggest increase since April 29, and the three-year yield climbed four basis points to 3.29 percent, according to stock exchange prices. The FTSE Bursa Malaysia KLCI Index dropped 0.6 percent.

1MDB reiterated its commitment to bondholders on Monday to resolve a dispute with Abu Dhabi’s sovereign-wealth fund that led to a debt default last month. The company held talks with creditors and outlined why it withheld payment on bonds due 2022, according to a statement after a conference call. It didn’t give details on the issues raised by the bondholders.

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