Ringgit rebounds from three-year low on GDP forecast; bonds fall

Ringgit rebounds from three-year low on GDP forecast; bonds fall
Business & Markets 2013
Written by Bloomberg
Wednesday, 21 August 2013 12:31

(Aug. 21): Malaysia’s ringgit rebounded from a three-year low before a report that economists predict will show economic growth accelerated. Government bonds declined.

Gross domestic product increased 4.7 percent in the second quarter after rising 4.1 percent in preceding three months, according to the median of 22 estimates in a Bloomberg survey before data due at 6 p.m. in Kuala Lumpur. The Malaysian currency, which has dropped almost 7 percent against the dollar this year, has weakened too much for an economy set to perform better in the coming months, Abdul Wahid Omar, minister in the Prime Minister’s Department, said yesterday.

The ringgit appreciated 0.1 percent to 3.2833 per dollar as of 9:23 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency reached 3.302 yesterday, the weakest level since June 10, 2010. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined three basis points, or 0.03 percentage point, to 9.78 percent.

“The expected improvement in GDP has certainly helped the ringgit,” said Vishnu Varathan, an economist at Mizuho Bank Ltd. in Singapore. “There will be some episodes of weakness in the Malaysian unit ahead of the Federal Reserve’s meeting in September.”

The Federal Open Market Committee releases minutes of its July meeting tomorrow. The Fed will start tapering bond buying next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13.

Economic Data

Consumer prices increased 2 percent in July from a year earlier, the most since March 2012, according to the median estimate in a Bloomberg survey before an official report due at 5 p.m. local time today. Malaysia’s current-account surplus narrowed to 900 million ringgit ($274 million) in the second quarter from 8.7 billion ringgit in the preceding period, according to another Bloomberg survey before data due today.

“Fundamentally, the ringgit shouldn’t be at this level,” Minister Abdul Wahid Omar, who is in charge of economic planning, said in an interview in Kuala Lumpur. Southeast Asia’s third- largest economy experienced a “slightly better” environment last quarter than the previous period and should do better in the second half, he said.

The yield on the 3.26 percent bonds due March 2018 rose one basis point to 3.58 percent according to data compiled by Bloomberg. It increased seven basis points in four days.