As ringgit extends rally StanChart, Macquarie see 3.90 in sight

[KUALA LUMPUR] Malaysia's ringgit headed for its biggest two-day gain since late January on speculation investors are turning less bearish on the currency as oil stabilizes.

The currency rose 0.8 per cent to 3.9760 versus the greenback as of 10:13 am in Kuala Lumpur, prices from local banks compiled by Bloomberg show.

The ringgit added to a 1.2 per cent advance on Tuesday, when it strengthened beyond 4 a dollar for the first time since August, and is now Asia's best performer this year with an 8 per cent gain.

A rally in Brent crude from a 12-year low is supporting the ringgit's rebound, as a recovery in commodities bolsters government finances for Asia's only net oil exporter. The currency has climbed 11 per cent from its 2016 low in January when crude reached a trough.

Sentiment also got a lift from a report in the Edge Financial newspaper that indebted state-investment company 1Malaysia Development Bhd is close to selling its power assets for 9.83 billion ringgit (S$3.36 billion).

"The market has been caught short ringgit and as a result of that we're seeing continued short-covering," said Divya Devesh, the Singapore-based foreign-exchange strategist for Asia at Standard Chartered Plc, who predicts the currency could appreciate to 3.90 a dollar in one to two months.

"Oil has been supportive as well recently, it's still above the US$41 level, so that helps as well."

While the median estimate in a Bloomberg survey is for the ringgit to weaken to 4.29 by the end of the second quarter, Macquarie Bank Ltd is also bullish with the same 3.90 forecast.

BLOOMBERG