Ringgit drops as sinking crude darkens outlook

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KUALA LUMPUR (Dec 19): Ringgit falls for first time in three days amid concern about Malaysia’s fiscal outlook after Brent crude dropped to the lowest in more than a year. November inflation figures are due.

* USD/MYR climbs 0.1% to 4.1770

** Support 4.1415, 4.1227, 4.0900; resistance 4.2020, 4.2437, 4.2531

* EM Asia FX traders are focusing on carry trade in high yielders such as INR, IDR and PHP due to dovish Fed outlook and lower oil prices, says Stephen Innes, head of Asia Pacific trading at Oanda Corp. in Singapore

** MYR is benefiting too, although its prospects are less positive due to weak energy prices and a likely Bank Negara Malaysia rate cut in 2019

* Deutsche Bank has turned negative on MYR while being onstructive on IDR and JPY for next year, according to its 2019 outlook report

** MYR has poor buffers from valuations and reserves, likely rate cuts and current-account compression

* 10-year yield fell 1 bp to 4.09% Tuesday

* CPI likely rose 0.4% in November y/y vs +0.6% in October: Bloomberg survey ahead of data due at noon local time

* Trade-reliant nations such as Malaysia remain the most vulnerable to growth downgrades and the impact of rising U.S. interest rates: S&P Global Ratings

* Malaysia’s benchmark equity index is heading for a 2-year low as the market reverses earlier gains on the back of fiscal concerns, lower oil prices and U.S.-China trade tensions

** NOTE: Overseas investors have pulled $2.7b from Malaysian stocks this year, versus $2.5b of inflows in the whole of 2017