Currency Ringgit breaks three-week rally as oil decline clouds outlook

by **Cals** Fri 11 Dec 2015, 22:00

Currency

[size=28]Ringgit breaks three-week rally as oil decline clouds outlook

By Bloomberg / Bloomberg | December 11, 2015 : 5:37 PM MYT

(Dec 11): Malaysia’s ringgit halted a three-week advance as a drop in crude prices to under US$40 a barrel clouded the outlook for Asia’s only major net oil exporter.

The nation will face a 30 billion ringgit (US$7 billion) revenue shortfall next year due to the drop in energy prices, Prime Minister Najib Razak was cited as saying in the New Straits Times this week. He flagged the potential deficit in his budget speech in October. Brent crude fell 8% this week to a six-year low as the Organization of Petroleum Exporting Countries suspended a long-time strategy of limiting output to control prices.

The ringgit’s decline this week was “largely driven by the slump in oil prices and leading up to the Federal Open Market Committee meeting next week,” said Christopher Wong, a Singapore-based senior currency analyst at Malayan Banking Bhd ([You must be registered and logged in to see this image.] Valuation: 2.70, Fundamental: 1.50), Malaysia’s largest lender. “We expect the Fed to reiterate the language for a gradual pace of tightening. So into year-end we are slightly more optimistic and see the ringgit around 4.20.”

Traders place a 78% probability that the Fed will raise rates next week for the first time since June 2006, according to data compiled by Bloomberg.

Volatility Drops

The ringgit weakened 1.5% for the week and 0.7% on Friday to 4.2915 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. Friday’s decline was the biggest among emerging-market currencies after Turkey’s lira.

“We still expect a little more weakening of the ringgit from current levels,” said Divya Devesh, Standard Chartered PlcAsian foreign-exchange-strategist in Singapore, adding that he expects the currency to drop to 4.45 by the year-end. “The biggest driver is going to be the Fed and what it does next week in terms of not just delivering a hike but the commentary associated with it.”

The ringgit’s one-month implied volatility, a measure of expected exchange-rate swings used to price options, dropped 33 basis points from Dec. 4 to 12.91%. It earlier declined to a four-month low of 12.65%.

Government bonds retreated this week, pushing the 10-year yield up 16 basis points to 4.37%, according to prices from Bursa Malaysia. The yield on notes due October 2020 advanced six basis points to 3.82%.

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