Ringgit gains most since April on FOMC as Malaysia budget looms

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(Oct 9): The ringgit advanced by the most in six months on speculation the Federal Reserve will delay raising interest rates and on optimism Malaysia’s budget will outline commitments to improve finances.

Fed officials expressed concern that a deterioration in global growth would hurt the U.S. recovery, according to minutes from the Federal Open Market Committee’s September meeting, spurring a fourth day of losses in the Bloomberg Dollar Spot Index. Malaysian Prime Minister Najib Razak is due to present the annual budget tomorrow, when he may give more details on a new consumption tax aimed at reducing the fiscal deficit, a week after cutting fuel subsidies.

“Asian currencies are gaining because the Fed’s minutes are weighing on the dollar’s strength,” said Saktiandi Supaat, Singapore-based head of foreign-exchange research at Malayan Banking Bhd. “The ringgit is firmer because people are expecting the Malaysia budget to reaffirm the government’s commitment on fiscal consolidation.”

The ringgit appreciated 0.9 percent to 3.2438 per dollar in Kuala Lumpur, the biggest gain since April 8, data compiled by Bloomberg show. The currency reached a two-week high of 3.2330. One-month non-deliverable forwards advanced 1 percent to 3.2510.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.2 percent today after dropping 0.5 percent yesterday following the FOMC minutes. That took its four-day loss to 1.7 percent. Comments from the Fed officials have fueled speculation that the central bank will keep its benchmark interest rate near zero for longer than anticipated after signaling plans to raise it in 2015.

Budget Outlook

While Malaysia is implementing the new consumption tax to bolster efforts to lower the fiscal deficit, the move is expected to aggravate inflation, adding to bets the central bank will increase its 3.25 percent policy rate again.

Bank Negara Malaysia raised borrowing costs by 25 basis points on July 10 for the first time in three years. One-year interest-rate swaps have climbed six basis points since then to 3.75 percent, data compiled by Bloomberg show.

The government is seeking to reduce the fiscal shortfall to 3.5 percent of gross domestic product in 2014 from 3.9 percent last year and is aiming to balance the budget by 2020.

One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, declined 34 basis points, or 0.34 percentage point, to 7.06 percent.

The yield on Malaysia’s 4.181 percent sovereign bonds due July 2024 fell two basis points to 3.87 percent, the lowest level since the debt was sold in January, data compiled by Bloomberg show.