Currency Ringgit leads Asia declines as reserves seen below $100 billion

by **Cals** Thu 06 Aug 2015, 20:21

Currency
Ringgit leads Asia declines as reserves seen below $100 billion

(Aug 6): The ringgit led losses in Asia on speculation Malaysia’s foreign-exchange reserves dropped below $100 billion in July for the first time since 2010.
The holdings slid 13 percent this year to $100.5 billion as of July 15, fueling speculation Bank Negara Malaysiaintervened to halt the currency’s slide to its weakest level since 1998. Macquarie Bank Ltd. predicts data on Friday will show the reserves sank to $96.5 billion by the end of last week and Societe Generale SA said today it expects the central bank to stop defending the exchange rate at about the $90 billion mark.
“The market is probably getting nervous because reserves are expected to fall below the psychological $100 billion mark,” said Nizam Idris, the Singapore-based head of foreign- exchange and fixed-income strategy at Macquarie Bank, the second-most accurate forecaster for the ringgit in the four quarters to June.
The currency weakened 0.6 percent to close at 3.9023 a dollar in Kuala Lumpur, prices from local banks compiled by Bloomberg show. That’s the lowest since September 1998 when it reached 3.9340. The dollar’s 14-day relative-strength index climbed to 82, holding above 70 for a fourth day, a level that signals the greenback may be poised to reverse direction.
Societe Generale cut its third-quarter ringgit forecast to 4.10 from 3.80, and the year-end estimate to 3.90 from 3.70, strategists Jason Daw and Frances Cheung wrote in a report Thursday. They said the central bank is unlikely to try and protect 4 per dollar after failing to defend 3.8 in July, the level it was pegged at in 1998.
A slump in Brent crude, a political scandal involving Prime Minister Najib Razak and the prospect of higher U.S. interest rates have all helped to spur the ringgit’s 10.6 percent loss this year.
Bonds Fall
The $100.5 billion reserves are enough to finance 7.9 months of retained imports and are 1.1 times short-term external debt, according to a central bank statement issued when the figure was released on July 23. While the import-cover ratio has fallen over the years, it remains well above the generally accepted benchmark of three months, the Societe Generale strategists wrote.
Malaysia’s 10-year government bonds declined, with the yield rising seven basis points to 4.14 percent, according to Bursa Malaysia prices. That’s the highest level since June 8 and the biggest increase in two months.