Ringgit falls on bets of US hiking rates in December

Malaysia’s ringgit fell by the most in a week after futures traders boosted odds for a US interest rate increase in December and amidst an overnight slump in Brent crude.

All 21 economists surveyed by Bloomberg predict Bank Negara Malaysia will hold the overnight policy rate at 3.25 percent later today, as it has since July 2014.

While the ringgit has dropped this year in Asia’s worst performance as declining Brent crude cuts government revenue for the net oil exporter, it may just be helping make its electronics products more attractive.

Those shipments grew in August by the most in 16 months and data for September are due tomorrow.

The ringgit weakened 0.9 percent to 4.3012 a US dollar as at 1.05pm in Kuala Lumpur after Federal Reserve (Fed) chair Janet Yellen said a December rate hike would be a “live possibility” if US economic data continue to point to growth and firmer prices.

The odds for such a move climbed to 56 percent from 50 percent, futures contracts showed.

“The ringgit’s move doesn’t raise my eyebrows,” said Masashi Murata, vice-president at Brown Brothers Harriman & Co in Tokyo. “It’s down because of the overnight drop in oil prices. Yellen showed an aggressive stance to start hiking rates.”

Bonds rise

The Bloomberg Dollar Spot Index rose 0.7 percent overnight in New York on Yellen’s comments.

Fifteen of the world’s sixteen major currencies tracked by Bloomberg have fallen against the greenback this year in anticipation of higher US rates.

New York Fed president William Dudley said on Wednesday he agreed with the chair’s view, but “let’s see what the data show”.

A US rate increase could spur capital outflows from Malaysia as debt yields become less attractive, with the Asian nation especially vulnerable when global funds hold 30 percent of its sovereign bonds compared with 16 percent for Thailand.

The ringgit has declined more than 18 percent his year and reached a 17-year low of 4.48 a US dollar in September.

The yield on Malaysia’s 10-year government notes dropped one basis point today to 4.14 percent. Similar-maturity US Treasury yields were at 2.22 percent, near a seven-week high.

Data tomorrow will show exports rose 3.6 percent in September from a year earlier, according to the median estimate in a Bloomberg survey.

Electronics shipments will be eyed after they climbed 16.7 percent the previous month. While Brent crude prices fell 3.9 percent overnight to US$48.58 a barrel, they edged up 0.3 percent today.

- Bloomberg