Ringgit climbs with bonds as political rallies pass peacefully

[KUALA LUMPUR] Malaysia's ringgit rose to a one-week high and bonds rallied after weekend protests calling for the resignation of Prime Minister Najib Razak ended peacefully. An overnight surge in oil prices also aided local markets as they reopened after Monday's National Day holiday.

The currency appreciated 0.7 per cent to 4.1645 a dollar in Kuala Lumpur, extending its recovery from a 17-year low of 4.2990 reached on Aug. 26, according to prices from local banks compiled by Bloomberg. It rose as much as 1.2 per cent earlier to 4.1430. The 10-year government bond yield dropped 17 basis points to 4.23 per cent, the biggest decline since 2013, Bursa Malaysia prices show.

Brent crude prices climbed 8.2 per cent in New York on Monday, easing concern that government finances will deteriorate for Asia's only major net oil exporter. The political rallies in the capital failed to draw a large number of ethnic Malays, a sign that a funding scandal enveloping Najib has yet to cause major dissent within his grassroots power base.

"Stronger oil prices are certainly helping at the margin," said Sue Trinh, head of Asia foreign-exchange strategy at Royal Bank of Canada in Hong Kong. "For the ringgit, we've got a lot of domestic forces at play as well, not least being the political uncertainty. Things are likely to get worse before they get better and we wouldn't rule out another re-test of the 4.3 level."

Overseas investors have pulled more than US$3 billion from Malaysian stocks this year and foreign ownership of the nation's debt fell to a three-year low in July as sentiment soured. Prospects that the US will soon raise interest rates are also weighing on the ringgit, which has plunged 16 per cent this year in Asia's worst performance.

The FTSE Bursa Malaysia KLCI Index rose as much as 2.9 per cent before closing 0.2 per cent down at 1,609.21 as emerging- market stocks fell. Energy services company SapuraKencana Petroleum Bhd jumped 4.1 per cent.

A special economic task force set up by Najib last week held its first meeting Tuesday and will draw up the necessary policies to support growth, Economic Planning Unit Minister Abdul Wahid Omar, who chairs the group, told reporters in the administrative capital of Putrajaya. Abdul Wahid reiterated the government's stance that the authorities will not peg the ringgit or impose capital controls as they did during the 1997-98 Asian financial crisis.

A measure of factory output dropped to 47.2 in August, from 47.7 a month earlier, the Nikkei Malaysia Manufacturing Purchasing Managers' Index showed on Tuesday. Fifty is the dividing line between expansion and contraction.

Exports data on Friday may show shipments rose 3.5 per cent in July, slowing from 5 per cent growth in June, according to the median estimate in a Bloomberg survey. Brent crude has declined 9.8 per cent in 2015 and has lost 49 per cent over the past year.

BLOOMBERG