Ringgit retreats as Fed's Fischer signals rates may rise in 2015

[KUALA LUMPUR] Malaysia's ringgit fell after Federal Reserve Vice Chairman Stanley Fischer said a US interest-rate increase is still on the cards this year even as futures appear to rule out such a move.

The currency retreated following last week's biggest five- day gain since 1998. The seven-day relative-strength index for the dollar fell to 21 on Oct. 9, below the key technical level of 30 that signals to some traders the greenback was poised for a reversal. Malaysia's economic growth faces greater risks from a global slowdown than inflation, and borrowing costs at current levels are supportive, central bank Governor Zeti Akhtar Aziz said in an interview in Lima, Peru on Sunday.

"The ringgit gained a lot last week so there could be a pullback here given that the market thinks the Fed is still looking at hiking rates this year," said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "A lot depends on oil prices going forward."

The currency weakened as much as 1.3 per cent before closing 0.2 per cent lower at 4.1412 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The ringgit has lost 16 per cent this year, a performance that trails only the Brazilian real, Turkish lira and Colombian peso among 24 emerging markets tracked by Bloomberg as a slump in Brent crude cuts earnings for Asia's only major net oil exporter.

The US economy may be strong enough to merit a rate increase by year-end, although policy makers are monitoring slower jobs growth and international developments in deciding the precise timing, said Mr Fischer. Futures contracts show the odds of such a move in 2015 have fallen to below 50 per cent after data on Oct 2 showed American employers took on 142,000 workers last month, below the median estimate of economists in a Bloomberg survey for a 200,000 gain.

Malaysia's industrial production rose 3 per cent in August from a year earlier, compared with a 6.1 gain in July, the government reported on Monday. It was the slowest pace of growth since July 2014 and below the median estimate of economists in a Bloomberg survey for a 4.1 per cent increase. While global funds bought a net RM783 million (US$188 million) of the nation's shares last week, outflows this year still stand at RM17.6 billion, surpassing the RM6.9 billion sold for all of 2014, MIDF Amanah Investment Bank said in a report Monday.

Sovereign bonds were little changed, with the 10-year yield at 4.12 per cent, according to prices from Bursa Malaysia.

BLOOMBERG