Ringgit falls to new low since 1998 after US jobs data, oil price drop

[KUALA LUMPUR] The ringgit fell to a new 1998 low as oil prices extended their decline and after a report showed the US jobless rate was at its lowest in seven years, adding weight to the Federal Reserve's plan to raise interest rates.

Brent crude extended last week's drop and has halved in price during the past 12 months, cutting government revenue for oil-exporting Malaysia. While the US unemployment rate touched 5.1 per cent in August, the lowest level since 2008, the rise in the non-farm payrolls numbers was less than forecast, according to official data on Sept 4. Higher US borrowing costs risk increasing capital outflows from emerging markets, just as slowing Chinese economic growth is curbing risk appetite.

"China's growth fears and Fed rate lift-off concerns are to blame for emerging currencies' weakness," said Sim Moh Siong, a foreign- exchange strategist at Bank of Singapore Ltd. in the city-state. "Emerging-market currencies on the whole were badly hit amid risk-off in financial markets." The ringgit weakened 1 per cent to 4.3030 a dollar as of 9:10 am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It earlier fell to 4.3100, the lowest level since January 1998 when it reached a record 4.8850. The currency dropped 1.4 per cent last week, an 11th straight weekly decline that was the longest since 1993.

Malaysia's central bank meets at the end of this week, with eight of nine economists surveyed by Bloomberg predicting no change in the benchmark interest rate from 3.25 percent. One expects a 25 basis-point increase. A report last Friday showed the nation's foreign-exchange reserves climbed to US$94.7 billion in the last two weeks of August. The holdings were at US$94.5 billion in the previous two weeks, the lowest level since 2009, and a signal the central bank may have been intervening to stem a slide in Asia's worst-performing currency this year.

The falling reserves are a constraint on how much the authorities can intervene to support the ringgit, Bank of Singapore's Sim said.

The odds for a rate increase at this month's Fed meeting were 30 per cent, 43 per cent for a move in October and 58 per cent for December. Non-farm payrolls climbed 173,000 in August, less than the 217,000 forecast in a Bloomberg survey and a revised 245,000 in the previous month.

BLOOMBERG