Oil rally lifts ringgit to Asia's best this week helped by Fed

[KUALA LUMPUR] A rally in oil helped make the ringgit this week's best-performing Asian currency just as demand for the dollar waned after the Federal Reserve gave a clearer picture over the timing of its interest-rate increase.

The currency headed for the biggest five-day gain since early October as Brent crude rose from its lowest level in more than two months. That helped boost sentiment for the ringgit, which has slumped this year as deteriorating commodity prices cut earnings for Asia's only major net oil exporter. The Fed's October minutes issued this week gave the strongest signal yet that the central bank will raise rates in December, with the wording for a gradual pace of future increases supporting demand for emerging-market assets.

"Everyone was talking about the Fed hiking and they finally understand now they are going to hike," said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. "Everyone's backing away from the dollar and locking in profits." The ringgit strengthened 1.7 per cent from Nov. 13 to 4.3025 a dollar as of 11:12 am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It advanced 0.9 per cent on Friday and reached a two-week high of 4.3020.

Every said that despite the recovery, the ringgit will likely resume its weakening trend now markets have priced in Fed tightening as focus shifts back to the factors weighing on Malaysia's outlook - general dollar strength, softness in commodities and potential declines in the Chinese currency.

The Bloomberg Dollar Index headed for a second week of losses after policy makers said in the Fed minutes"it may well become appropriate" to raise the benchmark lending rate in December. Futures contracts show a 68 per cent chance of that happening, compared with 50 per cent at the end of October.

A report due at noon local time Friday may show Malaysia's consumer prices rose 2.5 per cent in October from a year earlier, the slowest pace in four months, according to the median forecast in a Bloomberg survey. The central bank will release data on foreign-exchange reserves, which have dropped 19 percent this year to US$94 billion on speculation Bank Negara Malaysia intervened to support Asia's worst-performing currency of 2015.

Government bonds rose this week. The 10-year yield fell six basis points to 4.28 per cent, the biggest drop since Oct 2, according to prices from Bursa Malaysia. The yield on 2019 notes also declined six basis points to 3.58 per cent.

BLOOMBERG