Malaysia’s Ringgit Drops on U.S. Interest Rate Speculation

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Malaysia’s Ringgit Drops on U.S. Interest Rate SpeculationMalaysia’s ringgit looked set to record its biggest weekly drop in at least one month on bets that the buoyant U.S. economy will push the Federal Reserve to hike interest rates sooner than anticipated.

The ringgit declined 0.2 percent today and 1 percent this week to 3.1845 per dollar as of 12:28 p.m. Kuala Lumpur time. The currency’s one-month implied volatility, which measures the expected swings in the exchange rate used to set prices to options, jumped 58 basis points since Aug. 29 and also gained 10 basis points on Friday to 6.19 percent.

“The strengthening U.S. economy is creating expectations that U.S. rates will rise sooner rather than later,” Jonathan Cavenagh, a currency strategist at Westpac Banking Corp in Singapore, told Bloomberg News. ‘The ringgit is sensitive to higher U.S. yields.’’

U.S. services and manufacturing industries grew faster than estimated in August; spurring speculation the Fed may hike interest rates. This will in turn trigger a rally in U.S. Treasury yields and weigh on demand for emerging-market assets. In a meeting of central bankers in Jackson Hole, Wyoming, in August, Fed Chair Janet Yellen said U.S. central bankers may increase borrowing costs earlier than expected as labor market improves.

An official report released today showed that Malaysia’s trade surplus reduced to 3.64 billion ringgit ($1.14 billion) in July, a 12-month low. Exports increased 0.6 percent year-on-year, while imports fell 0.7 percent in the year through July.

Analysts surveyed by Bloomberg forecast that U.S. employers boosted payrolls by 230,000 workers, up from 209,000 employees in July. The yield on Malaysian government 3.654 percent notes that mature in October 2019 rose 0.05 percentage point or five basis points, to 3.74 percent. It rose two basis points on Friday.To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com