Ringgit falls as US jobs in focus after Fitch inspired rally

[KUALA LUMPUR] The ringgit fell the most in almost two weeks as investors switched focus to Friday's US jobs data to gauge when the Federal Reserve will raise interest rates, a move that could spur outflows from Malaysia.

The currency dropped 0.7 per cent to 3.7752 per dollar in Kuala Lumpur, after gaining 0.7 per cent Wednesday as Fitch Ratings refrained from cutting the nation's credit rating and lifted its outlook to stable from negative. The ringgit declined to a decade low of 3.7887 on June 29 amid investor concern that a downgrade was imminent.

Malaysia is vulnerable to a US rate increase because of the relatively high foreign ownership of government debt, while concerns still linger about the nation's finances and state investment company 1Malaysia Development Bhd. Figures due Friday may show the country's exports contracted in May, which would be the fourth month they have done so this year, as falling Brent crude prices hurt revenue.

"Weak exports, falling commodity prices and adjustments after Fitch's move yesterday are among the reasons for the ringgit's decline," said Nizam Idris, head of foreign-exchange and fixed-income strategy at Macquarie Bank Ltd in Singapore.

"The dollar is also much firmer as people are pricing in improvements in non-farm payrolls." The Bloomberg US Dollar Index, which tracks the greenback versus 10 major currencies, added 0.1 per cent following the 1.1 per cent gain in the past two days. Employers in the US created 233,000 jobs in June, according to the median estimate in a Bloomberg survey before data due later in the day.

Fitch said in a statement Tuesday that a new consumption tax introduced in April and fuel subsidy reforms are supportive of Malaysia's finances, even as government debt guarantees increase. The company warned in March that the chance of a rating cut was more than 50 per cent. It kept the rating at A-, the fourth-lowest investment grade.

The ringgit will probably still weaken to 3.8 against the dollar by year-end, according to Credit Suisse Group AG and United Overseas Bank Ltd. That's the level it was pegged at during the Asian financial crisis until the fixing was scrapped in July 2005.

Exports fell 8.7 per cent in May from a year earlier, according to the median estimate of economists in a Bloomberg survey. They contracted 8.8 per cent in April.

Malaysian 10-year government bonds fell, halting a two-day gain. The yield rose two basis points to 3.97 per cent. The five- year yield decreased one basis point to 3.57 per cent.

BLOOMBERG