Ringgit rallies with stocks as oil rebound eases deficit concern

[KUALA LUMPUR] Malaysia's ringgit gained the most since September 2013 and the benchmark stock index headed for the highest close in two months as a rally in the price of oil eased concern the nation's finances will deteriorate.

The currency climbed 1.7 per cent from Jan 30 to 3.5690 a dollar as of 9:42 am in Kuala Lumpur as markets reopened after holidays on Monday and Tuesday, according to prices from local banks. Brent crude jumped 5.8 per cent on Tuesday and has increased 19 per cent in five days to US$57.65 a barrel.

The price of the commodity had fallen to as low as US$45.19 on Jan 13, the least since 2009, causing the government to revise its 2015 fiscal deficit target to 3.2 per cent of gross domestic product from 3 per cent. Prime Minister Najib Razak has reduced this year's growth forecast to 4.5 per cent to 5.5 per cent from as much as 6 per cent. Malaysia is Asia's only major net exporter of oil.

"The main factor driving the ringgit has been the 19 per cent rebound in oil prices over the past four or five trading sessions," said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp in Singapore. "It's more about people exiting long-dollar positions. For the outlook to turn more positive on the ringgit, you need to see oil prices continue to improve from here." One-month implied volatility in the ringgit dropped 24 basis points to 9.94 per cent, adding to Tuesday's 60 basis-point slide, according to Bloomberg-compiled data.

The FTSE Bursa Malaysia KLCI Index of shares climbed 1.6 per cent and headed for its highest close since November. SapuraKencana Petroleum Bhd, the nation's biggest oilfield services contractor by market value, surged 5.6 per cent, the most this year. Petronas Chemicals Group Bhd. rose 5.7 per cent, leading gains on the benchmark gauge. The Standard & Poor's 500 index of US equities advanced 1.5 per cent Tuesday.

"Markets are taking their cue from the US market and oil prices," said Ang Kok Heng,the Kuala Lumpur-based chief investment officer of Phillip Capital Management Sdn, which manages US$428 million. "The oil rebound benefits Malaysia. There is less pressure on the ringgit." Exports rose 0.9 per cent in December from a year earlier, according to the median estimate in a Bloomberg survey before data due Thursday. Overseas sales increased 2.1 per cent the previous month.

Global funds cut holdings of Malaysian debt, both government and corporate, by 4.5 per cent to 225.9 billion ringgit (US$63.3 billion) in December, adding to the 5.8 per cent outflow in November, according to the central bank's website.

Three-year sovereign bonds were little changed, yielding 3.52 per cent, data compiled by Bloomberg show.

BLOOMBERG