[KUALA LUMPUR] The ringgit slid to a nine-year low after a US jobs report beat forecasts, backing the case for the Federal Reserve to start tightening monetary policy as money flows out of Malaysian stocks.
The dollar rose against 13 of the world's 16 major currencies on Friday after data showed US employers created 280,000 positions in May, the most in five months and exceeding the median estimate in a Bloomberg survey for a 226,000 gain.
Malaysian exports contracted in April for a third month this year, and the trade surplus narrowed, figures showed last week.
Overseas investors sold more of the nation's equities than they bought in May, taking out the most funds of any month this year.
"Strong US non-farm payrolls sent the dollar rallying across the board," said Khoon Goh, a Singapore-based senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd.
"Last Friday's disappointing Malaysian export data is also pressuring the ringgit."
The currency weakened 1.3 per cent to 3.7682 versus the greenback as of 1.16pm in Kuala Lumpur, the biggest drop in Asia, according to data compiled by Bloomberg. It earlier fell to 3.7700, the lowest level since January 2006 and close to the 3.8 level at which it was pegged until 2005.
Malaysia imposed a fixed ringgit rate in 1998 at the height of the Asian financial crisis after the currency tumbled 35 per cent the previous year and the Thai baht was devalued.
Malaysia is vulnerable to outflows spurred by higher US interest rates as central bank data show global funds hold 32 per cent of the nation's government bonds, compared with 18 per cent for Thailand. Global funds sold a net RM2.5 billion (S$900 million) of the nation's shares last month, stock exchange data show.
The nation's foreign reserves have recovered to US$106.4 billion after falling to US$105.1 billion in March, the lowest level since 2010 and below the 10-year average of US$112.42 billion.
"If the US dollar continues to strengthen, then there is a chance of the ringgit reaching 3.80," said Goh. "I do not expect Bank Negara Malaysia to be active in preventing this from happening, given the rundown in reserves since August."
The nation's exports dropped 8.8 per cent in April from a year earlier, worse than the median estimate of economists for a 5.5 per cent contraction. The trade surplus shrank to RM6.89 billion from RM7.82 billion.
Government bonds dropped, with the 10-year yield rising two basis points to 4.10 per cent. It climbed 16 basis points last week, the biggest increase since the debt was sold in March.