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Ringgit falls to 10-week low as oil's drop compounds Fed bets

Tuesday, May 24, 2016 - 12:51
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Malaysia's ringgit fell to a 10-week low as a decline in energy prices clouded the outlook for the oil exporter's finances. Bonds dropped amid rising odds for a US interest-rate increase.

[KUALA LUMPUR] Malaysia's ringgit fell to a 10-week low as a decline in energy prices clouded the outlook for the oil exporter's finances. Bonds dropped amid rising odds for a US interest-rate increase.

The ringgit led losses in emerging-market currencies and stocks retreated along with most of Asia. Brent crude extended its decline to a fifth day, the longest stretch in four months. Malaysia loses 450 million ringgit (S$150 million) for every US$1 drop in oil, Prime Minister Najib Razak said in April.

Federal Reserve Bank of Philadelphia President Patrick Harker said Monday he could see two to three rate hikes in 2016. His San Francisco counterpart John Williams said on Fox News the June meeting could be "appropriate" for an increase.

"The market has been repricing the higher likelihood of a Fed rate hike in June or July," said Sim Moh Siong, a foreign- exchange strategist at Bank of Singapore Ltd.

"The stock market has sold off across Asia and that's probably adding to the worries over the risk-off."

The ringgit dropped 0.9 per cent to 4.1205 per US dollar as of 11:42 am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It depreciated to 4.1235, the weakest since March 16. The currency is Asia's worst performer this month as the losses in Brent trimmed a gain in the commodity to just 0.1 per cent in May.

1MDB Dispute

Malaysia's 10-year government bond yield rose one basis point to 3.85 per cent and the three-year yield climbed two basis points to 3.27 per cent, according to stock exchange prices. The FTSE Bursa Malaysia KLCI Index dropped 0.3 per cent.

Troubled state investment company 1Malaysia Development Bhd reiterated to bondholders its commitment to resolving a dispute with Abu Dhabi's sovereign-wealth fund that led to a debt default last month.

1MDB held talks with creditors on Monday and outlined why it withheld payment on bonds due 2022, according to a statement after a conference call. 1MDB didn't give details on the issues raised by the bondholders.

The odds of a Fed rate increase in June climbed to 32 per cent from 20 per cent a month ago, futures contracts show. The chance of a July hike moved up to 54 per cent from 34 per cent.

BLOOMBERG