Ringgit declines to lowest since 2010, bonds drop on Fed outlook

Ringgit declines to lowest since 2010, bonds drop on Fed outlook
Business & Markets 2013
Written by Bloomberg
Thursday, 22 August 2013 14:03

22 Aug 2013 10:55

(Aug. 22): Malaysia’s ringgit fell to the weakest level since June 2010 and bonds declined after Federal Reserve minutes showed policy makers back Chairman Ben S. Bernanke’s plan to cut stimulus, boosting demand for the dollar.

Ringgit forwards dropped the most in two months and the benchmark stock index slipped to the lowest since May, tracking a selloff across Asian markets. Fed members are “broadly comfortable” with the plan to reduce bond-buying later this year should the economy improve, according to the record of the July 30-31 meeting. Malaysia’s current-account surplus fell to the least since at least 1999, data showed yesterday, while the central bank pared its 2013 growth forecast.

“The dollar was strong after the minutes,” said Nizam Idris, the head of fixed income and currency strategy at Macquarie Bank Ltd. in Singapore. “The market is still worried and probably pricing in the potential for Malaysia’s current account to fall into deficit.”

The ringgit retreated 0.7 percent, the biggest drop since June 20, to 3.3180 per dollar as of 10:45 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.3220, the weakest since June 10, 2010. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 67 basis points to 10.41 percent.

One-month non-deliverable forwards dropped 1 percent to 3.3265 against the greenback, the lowest since June 2010 and 0.3 percent weaker than the spot rate. The Bloomberg U.S. Dollar Index climbed 0.3 percent to 1029.50, a two-week high.

Bonds Fall

Southeast Asia’s third-largest economy may expand 4.5 percent to 5 percent in 2013, compared with a previous prediction of as much as 6 percent, the central bank reported. The current-account surplus shrank to 2.6 billion ringgit ($784 million) in the second quarter from 8.7 billion ringgit in the previous three months.

The yield on the government’s 3.172 percent bonds due July 2016 climbed three basis points, or 0.03 percentage point, to 3.47 percent, according to data compiled by Bloomberg. The rate on 10-year notes rose four basis points to 3.99 percent.

Malaysia is well-placed to handle any selloff in its sovereign debt due to support from institutional investors, central bank Governor Zeti Akhtar Aziz said yesterday.