Ringgit heads for worst week since September on oil, 1MDB woes

[KUALA LUMPUR] Malaysia's ringgit headed for its biggest weekly drop in 10 months as lower crude oil prices and the fallout from a controversy involving a state investment firm sapped demand for the nation's assets. Bonds surged.

The currency retreated as Brent crude's 2.8 per cent decline in five days clouded the outlook for oil-exporting country's revenues, and after a slew of better-than-expected US data boosted demand for the dollar.

Authorities in Singapore and the US moved to seize assets linked to alleged fraud involving 1Malaysia Development Bhd, the latest chapter in the troubled company's woes that contributed to the ringgit's biggest annual drop since 1997 last year.

"The market is now looking at pricing in a higher probability of a rate hike by the Fed this year," said Irene Cheung, a foreign-exchange strategist in Singapore at Australia & New Zealand Banking Group Ltd.

Oil prices have affected the ringgit and the latest developments on 1MDB may have "an impact on the political front, which we don't know how it will work out and how serious it is," she said.

The ringgit fell 0.5 per cent Friday, and 2.8 per cent this week, to 4.0608 per dollar as of 10:34 am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The 5-day decline is the biggest since the period ended Sept 25.

More than US$3.5 billion was misappropriated from 1MDB, and about US$1 billion was laundered through America's banking system, the US Justice Department said in filings Wednesday.

The Monetary Authority of Singapore said Thursday it seized S$240 million in assets from individuals linked to alleged fraud at 1MDB. The Malaysian government said it will cooperate with lawful investigations of local companies or its citizens.

Futures show a 45 per cent chance of the Federal Reserve increasing interest rates by December, compared with 9 per cent at the end of June, after data on retail sales, housing and employment in the US beat economists' estimates.

Government bonds rose Friday, pushing the yield on 10-year notes down 13 basis points to 3.55 per cent, according to prices from Bursa Malaysia. The yield ended a five-day advance and was down two basis points from a week ago.

BLOOMBERG