Ringgit gains as Zeti says losses not reflective of fundamentals

[KUALA LUMPUR] Malaysia's ringgit strengthened as some investors judged excessive the slide that's made it Asia's biggest loser over the past month and after central bank Governor Zeti Akhtar Aziz said the weakness doesn't reflect economic fundamentals.

The currency slumped this week to its lowest level since a peg to the dollar was scrapped in 2005 as a 44 per cent drop in Brent crude prices from a 2014 peak cuts revenue for the oil exporter. That's helped to exacerbate the ringgit's losses as Asian currencies come under pressure from the prospect of higher US interest rates. Ms Zeti said June 8 that the weakness should be temporary, spurring a rebound in the currency.

"While the outlook is challenging, perhaps the ringgit has been too heavily punished relative to its Asian peers," said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. "Technically, the ringgit could overshoot on the downside, but the fundamental picture is less dire than what the near-term momentum suggests." The ringgit climbed 0.2 per cent to 3.7370 a dollar as of 10:36 am in Kuala Lumpur, according to data compiled by Bloomberg. The currency headed for a fourth weekly decline, the longest stretch this year, after falling to 3.7743 on Monday, the lowest level since January 2006.

Former Prime Minister Mahathir Mohamad pegged the ringgit at 3.8 to the dollar in 1998 after the currency plunged 35 per cent the previous year amid a devaluation in the Thai baht. The fixed exchange rate was scrapped in July 2005, the same month China abandoned its peg.

Southeast Asia's third-largest economy will expand 4.5 per cent to 5.5 per cent this year, according to the official forecast, slowing from 6 per cent in 2014. That's comparable to the 5.05 per cent predicted by analysts for Indonesia and faster than the 3.5 per cent for Thailand, the region's two-biggest economies.

The currency is expected to resume trading at levels that reflect the nation's fundamentals when uncertainty affecting market sentiment subsides, Ms Zeti said.

Repegging the ringgit is one way to stabilise the currency, Mr Mahathir was reported as saying in a Star newspaper report on Thursday.

Malaysia's government bonds fell this week, with the 10- year yield rising five basis points to 4.13 percent, data compiled by Bloomberg show.

BLOOMBERG