[KUALA LUMPUR] Malaysia's ringgit fell the most in almost two months and Indonesia's rupiah recorded its biggest decline since October as an escalation of tensions between Iran and Saudi Arabia bolstered demand for the dollar.
The benchmark KLCI and Jakarta stock indexes retreated as Saudi Arabia cut diplomatic ties with Iran after its embassy in Tehran was attacked to protest the Saudis' execution of a prominent Shiite cleric. The ringgit lost ground even as Malaysia's oil export revenues stood to gain from a rise in Brent crude to a three-week high.
"The main currency that gets supported is still the dollar" in times of risk aversion, said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. "Oil took a back seat."
The ringgit dropped 1.2 per cent to 4.3465 a dollar in Kuala Lumpur, the biggest decline since Nov. 9, according to prices from local banks compiled by Bloomberg. It earlier reached a six-week low of 4.3470. The currency lost about 19 per cent last year, the worst performance in Asia, as a slump in Brent crude hurt the outlook for Asia's only major net oil exporter.
The rupiah retreated 0.9 per cent to 13,919 a dollar in Jakarta, the biggest decline since Oct. 29, according to prices from local banks. It sank 10.2 per cent in 2015 - a fifth year of losses and the longest stretch since 1998 - as exports contracted for a 14th straight month through November amid a slump in commodity prices. Indonesia, the world's biggest palm oil grower and thermal coal exporter, said it missed its target for economic growth in 2015 because of a global slowdown. The economy expanded 4.73 per cent from a year earlier, missing the 5.7 per cent target set in the state budget, according to the finance ministry.
"Even if Indonesia announced good growth today, the rupiah will have been down," said Leong Sook Mei, Southeast Asia head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Singapore. "It has to do with risk-off with regards to the global tensions." Ten-year Malaysian government bonds rose, pushing the yield down two basis points to 4.18 per cent, according to prices from Bursa Malaysia. The yield on Indonesia's notes climbed six basis points to 8.81 per cent.