The ringgit hit another pre-peg 17-year low today, hours before the release of Malaysian foreign-exchange reserves data that will be closely watched.
If the reserves drop further, that could increase concern about how much ammunition the central bank has to defend the currency.
Most emerging Asian currencies eased today, and will have weekly losses. Investors were awaiting US jobs data that might cement expectations the Federal Reserve (Fed) will raise interest rates next month.
The ringgit fell as much as 0.6 percent to 3.9280 per US dollar, its weakest since Sept 2, 1998, the day before the government pegged it at 3.8000 per US dollar to put a floor under the currency during the Asian financial crisis. Malaysia lifted the peg in 2005.
Malaysia’s government bond prices continued to fall amid declining confidence among foreign investors due to political fallout and low commodity prices. The five-year bond yield rose to 3.742 percent, its highest since Feb 17, while the 10-year yield advanced to a near two-month peak of 4.150 percent.
Caution increased over possible intervention by the central bank to bolster the worst-performing Asian currency this year.
The ringgit has been hurt by uncertainty about the future of Prime Minister Najib Abdul Razak amid corruption allegations circling an indebted state fund 1MDB.
However, investors doubt how heavily Bank Negara Malaysia could intervene as the country’s international reserves already lost US$5 billion (RM19.5 billion) to US$100.5 billion in the first half of July.
The central bank will release the reserve data for the rest of July at 6pm.
“Bank Negara is apt to stick to its previous intervention tactics of slowing the rate of depreciation when capital outflows or speculative pressures are evident, but if reserves fall toward US$90 billion they are likely to ‘let it go’,” said analysts for Societe Generale in a client note.
Societe Generale revised its ringgit forecast for the third quarter to 4.1000 from 3.8000.
The Malaysian currency has lost nearly 11 percent against the US dollar this year as falling commodity prices spurred worries about exports from the country that supplies liquefied natural gas and palm oil.
Ringgit’s worst week in eight months
So far this week, the ringgit has fallen 2.6 percent, which would be its largest weekly loss since December 2014, Thomson Reuters data showed.
Most emerging Asian currencies were set to suffer weekly losses on growing expectations of a US interest hike in September after upbeat US economic data and hawkish comments by a Fed official.
The prospects, along with volatile China’s stocks and a commodity rout, dragged foreign money out of emerging markets including Asia. Most regional bond yields also rose.
The Singapore dollar has slid 1 percent this week on growing concerns over a sluggish economy. The city-state’s economy in the second quarter probably contracted 4.6 percent from the previous quarter on an annualised basis, in line with the government’s earlier estimate, a Reuters poll showed.
The immediate focus is US July non-farm payrolls data later in the day. Economists expect the US employment report to show 223,000 jobs were created in July.
A solid number will definitely hurt emerging Asian currencies, but a weak figure could support regional units for a short time, some analysts said.
Expectations of the Fed’s liftoff and optimism on the US economic recovery have been priced into the US dollar’s recent strength, they added.
“A disappointment may spur some controversies on a September hike and a short-term rebound in Asian currencies,” said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul.
- Reuters
