This article first appeared in The Edge Financial Daily, on May 6, 2016.

KUALA LUMPUR: The ringgit weakened beyond the 4 level against a strengthening US dollar yesterday after American policymakers indicated that the Federal Reserve (Fed) might raise interest rates next month.

Higher US interest rates do not bode well for emerging Asian markets like Malaysia as investors shift their money back to US dollar-denominated assets.

The ringgit closed at 4.0078 against the greenback yesterday.

Over the last one year, the ringgit had traded between 3.5608 and 4.4812 versus the US dollar. On March 29 this year, the local currency strengthened past the 4 mark to 3.9925.

Bloomberg reported that the US dollar solidified its rebound, dominating Asian emerging-market currencies after Fed officials floated the possibility of higher interest rates next month.

The ringgit sank to its lowest level since the end of March, even as US crude extended gains into a second day, the report stated.

The June futures contract for West Texas Intermediate crude oil increased 4.5% to US$45.75 per barrel, while the futures contract for Brent crude oil rose 3.79% to US$46.31 per barrel.

The FBM KLCI fell 12.49 points or 0.8% to 1,645.09 points on the back of the weakened ringgit.

Affin Hwang Investment Bank Bhd retail research head Datuk Dr Nazri Khan said in a note yesterday he expects Malaysian markets to take the cue from the US and Japan’s monetary policies.

He said the lack of stimulus from the Bank of Japan last month had surprised investors, dragged risk appetite and weighed on global equity markets.

“Further, we expect sentiments to be weak amid a hawkish Fed statement that is keeping the path open for a rate hike in June, although it leaves interest rates unchanged for now,” he said.

Nazri added that the local bourse will trend lower temporarily to correct its overbought situation.