Ringgit declines by most in a week on Fed rate-rise speculation

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(Sept 9): Malaysia’s ringgit fell the most in a week on speculation a U.S. recovery will back the case for the Federal Reserve to increase interest rates next year.

The Bloomberg Dollar Spot Index climbed to a 14-month high before the Fed’s Sept. 16-17 policy review and after data yesterday showed U.S. consumer-credit growth beat forecasts in July. Malaysia’s factory output slowed to the least in four months in July, according to a Bloomberg survey before a Sept. 11 report.

“The dollar is stronger due to the upcoming Federal Open Market Committee meeting,” said Saktiandi Supaat, Singapore- based head of foreign-exchange research at Malayan Banking Bhd. “There seem to be expectations for some form of hawkish signals at next week’s meeting.”

The ringgit depreciated 0.5 percent, the biggest drop since Sept. 2, to 3.1895 per dollar as of 10:24 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 10 basis points, or 0.10 percentage point, to 6.23 percent.

Consumer borrowing in the U.S. rose by $26 billion in July, exceeding the median estimate of economists for a gain of $17.4 billion. Low volatility across financial markets may signal investors are underestimating how quickly the U.S. central bank will raise interest rates, according to a report from San Francisco Fed researchers yesterday.

Malaysia’s industrial production increased 4.3 percent in July from a year earlier, after climbing 7 percent the previous month, according to the median estimate of economists in a Bloomberg survey.

The yield on Malaysia’s 3.654 percent sovereign bonds due October 2019 was little changed at 3.74 percent, data compiled by Bloomberg show.