Malaysia’s Ringgit Drops on Bond Yield Differential

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Malaysia’s Ringgit Drops on Bond Yield DifferentialMalaysia’s ringgit posted its biggest weekly decline since August, while bonds surged after the central bank retained its benchmark interest rate as the U.S. Federal Reserve prepares to raise interest rates early next year.

The currency plunged 1.1 percent since Monday to 3.2340 per dollar, and fell 0.2 percent today. It had earlier touched 3.2483, the lowest level in four months. The ringgit’s one-month implied volatility, which measures the expected swings in the exchange rate used to set price to options, plunged 1.01 percentage points on Friday to 6.93 percent. The gauge has declined seven basis points over the past five days.

The yield differential between Malaysian and U.S. debt narrowed after Bank Negara Malaysia retained its target rate at 3.25 percent on Thursday. The Malaysian central bank had earlier hiked the rate in July, the first time to do so in over three years. The Fed improved its interest-rate outlook for the end of next year by 25 basis points.

“The Fed signals a higher rate path, whereas Bank Negara stood pat,” Choong Yin Pheng, a Kuala Lumpur-based senior manager for bond and economic research at Hong Leong Bank Bhd, told Bloomberg News. “That’s driving down the ringgit.”

The yield on the nation’s 3-year sovereign bonds fell nine basis points to 3.50 percent, and plunged 11 basis points this week. The yield on the 10-year bond declined six basis points, or 0.06 percentage points, since Thursday to 3.94 percent, while the 10-year U.S. Treasuries appreciated one basis point, or 0.01 percentage point, to 2.63 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com