[KUALA LUMPUR] Malaysia's ringgit weakened the most in two months as the yuan's devaluation put further pressure on Asia's worst-performing currency reeling from a slump in oil prices and a political scandal.
The ringgit fell early Wednesday to within 0.1 per cent of 4 to the dollar, a level last seen in August 1998. It was down 0.9 per cent at 3.9945 as of 9:43 am in Kuala Lumpur, near a low for the day of 3.9975, according to prices from local banks compiled by Bloomberg.
The People's Bank of China cut its daily reference rate by a record 1.9 per cent on Tuesday, triggering the yuan's biggest one-day loss in two decades. Vietnam widened the dong's trading band on Wednesday, adding to speculation policy makers will reignite a currency war to weaken their exchange rates and revive faltering exports. Brent crude prices that are less than half what they were from a 2014 peak are hurting government revenue for Malaysia as a net oil exporter.
"The lower oil price and devalued yuan should be negative for the ringgit," said Masashi Murata, vice president at Brown Brothers Harriman & Co in Tokyo. "A weaker ringgit is negative for Malaysian domestic demand as it boosts inflation expectations and money outflow." Malaysia's sovereign bonds declined Wednesday, with the 10-year yield rising two basis points to 4.21 per cent, according to prices from Bursa Malaysia. That's the highest level for a benchmark of that maturity since January.
A government report on Thursday may show Malaysia's second- quarter economic growth slowed to 4.5 per cent from 5.6 per cent in the previous three months, according to the median estimate in a Bloomberg survey. That would be the slowest pace since early 2013.
As the currency weakened this year amid the political scandal linked to state investment company 1Malaysia Development Bhd that's embroiled Prime Minister Najib Razak, global investors cut holdings of the nations debt and equities just as the US prepares to raise interest rates.