Update: Best ringgit rally since 1998 has Macquarie seeing gain

[KUALA LUMPUR] Malaysia's ringgit headed for its biggest monthly rally since 1998 on speculation investors are turning less bearish on the currency as oil stabilizes.

The currency rose 0.4 per cent to 3.9940 versus the greenback as of 1:28 pm in Kuala Lumpur, prices from local banks compiled by Bloomberg show. The ringgit has appreciated 5.2 per cent this month and is Asia's best performer in 2016 with a 7.5 per cent gain. It strengthened beyond 4 a dollar for the first time since August on Tuesday and climbed to a high of 3.9597 today.

A rally in Brent crude from a 12-year low is supporting the ringgit's rebound, as a recovery in commodities bolsters government finances for Asia's only net oil exporter. The currency has climbed 11 per cent from its 2016 low in January and sentiment is improving after indebted state-investment company 1Malaysia Development Bhd. completed the sale of its power assets to China General Nuclear Power Corp.

"The market has been caught short ringgit and as a result of that we're seeing continued short-covering," said Divya Devesh, the Singapore-based foreign-exchange strategist for Asia at Standard Chartered Plc, who predicts the currency could appreciate to 3.90 a dollar in one to two months. "Oil has been supportive as well recently, it's still above the $41 level, so that helps."

While the median estimate in a Bloomberg survey is for the ringgit to weaken to 4.29 by the end of the second quarter, Macquarie Bank Ltd is bullish with the same 3.90 forecast as Standard Chartered.

A statement from 1MDB said the energy asset sale to China General Nuclear Power was completed with an exchange of shares for cash, although an amount wasn't specified. A report in the Edge Financial newspaper Tuesday cited unidentified people familiar with the matter as saying the state-investment company would receive the outstanding balance of 90 per cent of the 9.83 billion ringgit (S$3.3 billion) the Chinese firm is paying for Edra Global Energy Bhd.

The disposal of Edra is part of 1MDB's plan to wind down operations. Prime Minister Najib Razak chairs the state- investment company's board and is facing calls to step down after the firm amassed 42 billion ringgit of debt, and after he received a political donation from Saudi Arabia's royal family. The premier has denied any wrongdoing.

The cost to insure Malaysian government debt is also falling. Five-year credit-default swaps have dropped 65 basis points from the year's high to 160, CMA prices show. And a 4 billion ringgit sale of 10-year Islamic bonds on Wednesday received bids for 3.2 times the amount on offer. The 10-year conventional note yield rose two basis points to 3.86 per cent, according to prices from Bursa Malaysia.

BLOOMBERG