Ringgit plunges with oil after producers fail to freeze output

[KUALA LUMPUR] Malaysia's ringgit fell the most in two months as Brent crude plunged after major oil producers failed to come up with an agreement to freeze output and address a supply glut.

The disappointment stemming from the weekend meeting in Doha risks reversing a rally in emerging Asia's best-performing currency this year as a renewed decline in the commodity puts pressure on the government finances of oil-exporting Malaysia.

Brent tumbled 4.9 per cent to US$41.01 a barrel as Iran appeared to be the main stumbling block to an agreement. Hopes a deal would be reached had spurred gains across world markets in recent days and driven Brent above US$44 last week for the first time in four months.

"The ringgit's near-term fortunes are heavily tied to oil- price developments," said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd in Singapore.

"It really depends on whether oil prices can stabilize or continue to fall."

The ringgit led emerging-market losses in early Asian trading. It fell 0.9 per cent to 3.9395 a US dollar as of 9:13 am in Kuala Lumpur after being down as much as 1.5 per cent earlier, according to prices from local banks compiled by Bloomberg. That pared its gain this year to 8.9 per cent, trailing only Brazil's real and Russia's ruble among emerging markets.

Steady Growth

The ringgit "would be stronger" if it reflected Malaysia's fundamentals, with the nation recording steady growth, low inflation and an improving fiscal position, central bank governor Zeti Akhtar Aziz said in an interview in Washington on Saturday.

The Southeast Asian economy will meet its 2016 expansion target of 4 per cent to 4.5 per cent even as risks to the global outlook mount and greater volatility may persist in capital flows, she said.

The International Monetary Fund warned last week that risks to global financial stability are rising as growth slows and commodity prices decline, which could lead to a stagnation in credit.

The Washington-based lender lowered its 2016 global expansion forecast for the second time this year, to 3.2 per cent from 3.4 per cent, citing the impact of weak exports.

Other Asian exporters are already feeling the impact of slowing demand. Singapore reported Monday its non-oil shipments dropped the most in three years in March. The Monetary Authority of Singapore last week unexpectedly eased policy as economic growth ground to a halt.

Government bonds fell, pushing the 10-year yield up one basis point to 3.78 per cent, according to prices from Bursa Malaysia.

BLOOMBERG