Ringgit falls with oil as rallies falter; three-year yield drops

[KUALA LUMPUR] Malaysia's ringgit posted the biggest two-day slide since Britain voted to exit the European Union amid the subdued mood in emerging markets as oil and stocks fell.

Crude prices dropped for a second day, damping the outlook for government finances for Asia's only major net oil exporter before the International Monetary Fund updates its projections for world growth on Tuesday.

Bank Negara Malaysia unexpectedly lowered interest rates last week for the first time in seven years and shorter-maturity bond yields show traders are pricing in the possibility of another cut.

"The risk appetite seems to be a little softer," said Mitul Kotecha, head of Asia currency and rates strategy at Barclays Plc in Singapore.

"There is nothing specific that has turned risk sentiment around today, but the momentum is just flagging. We've seen a loss of momentum in oil and that's also adding another negative factor for the ringgit."

The ringgit dropped 0.6 per cent to 4.0030 per dollar at the 6 pm close in Kuala Lumpur, adding to Monday's 0.8 per cent loss, prices from local banks compiled by Bloomberg show. It was the biggest two-day decline since June 27.

The Bloomberg Dollar Spot Index rose for a third day as traders started to put bets back on for a Federal Reserve rate increase by December.

The minutes of the Reserve Bank of Australia's July meeting released earlier in the day showed policy makers kept their options open. At the same time, the Reserve Bank of New Zealand moved to rein in a housing boom, paving the way for lower borrowing costs.

Developing-nation stocks halted an eight-day rally, with the MSCI Emerging Markets Index falling 0.2 per cent. Brent crude prices dropped 0.2 per cent to US$46.87 a barrel.

Malaysia's bonds were mixed. The three-year yield fell eight basis points to 2.80 per cent, the lowest for a benchmark of that maturity since 2009 and below the central bank's 3 per cent policy rate. The 10-year yield climbed two basis points to 3.60 per cent.

BLOOMBERG