Ringgit rises to two-month high on oil's rally, fading Fed bets

[KUALA LUMPUR] Malaysia's ringgit rose to a two-month high as crude prices rallied this week and the US dollar declined after investors reduced bets that the Federal Reserve will raise interest rates in 2016.

The currency has recouped all its losses from the turmoil that hit global markets when the UK voted to leave the European Union a week ago, as Brent crude climbed 3.3 per cent from June 24, set for its biggest gain since the five days ended May 13. The rebound in commodity prices brightens the outlook for Malaysia as Asia's only major net oil exporter and a producer of palm oil.

The ringgit strengthened 0.9 per cent to 3.9945 per dollar as of 12.03pm in Kuala Lumpur and earlier reached 3.9818, the highest since May 4, according to prices from local banks compiled by Bloomberg. It is up 2.4 per cent for the week, set for its biggest gain in three months.

"Sentiment remains buoyant as equities and oil prices stay supported," said Christopher Wong, a foreign-exchange strategist at Malayan Banking in Singapore. "Prospects of a fading Fed rate hike also help."

The currency trimmed its gains of as much as 1.2 per cent on Friday after exports unexpectedly contracted in May. Shipments fell 0.9 per cent compared with the 2 per cent increase forecast by economists in a Bloomberg survey. The trade surplus slumped to RM3.26 billion (S$1.1 billion) from 9.06 billion ringgit in April. That's a sharper drop than the RM8.26 billion expected.

Traders have pared bets for a US rate increase by December to just 9 per cent, compared with 50 per cent when the UK went to the EU referendum polls on June 23, futures show. That's helped quell concern that higher rates in the world's biggest economy would diminish the appeal of emerging-market assets and spur capital outflows.

Government bonds rallied this week. The 10-year yield dropped 19 basis points to 3.72 per cent. That's the biggest decrease since January, data compiled by Bloomberg show. The five-year note yield fell 13 basis points to 3.34 percent, the most since December.

BLOOMBERG