Ringgit rises to 1-week high on subdued dollar

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KUALA LUMPUR (March 14): Ringgit climbs to a one-week high as the dollar remains on a backfoot after U.S. inflation data backed the case for the Federal Reserve to proceed with gradual tightening.

* USD/MYR falls 0.1% to 3.8945; reached 3.8935, lowest since March 5

** Support 3.8857, 3.8663, 3.8465; resistance 3.9313, 3.9358, 4.0055

* Oanda Corp sees support for USD/MYR at 3.85 with a view for a drop to 3.70 when dollar weakens, “but best to be patient in this environment,” says Stephen Innes, head of trading for Asia Pacific

** While the prospect of a trade war may weigh on regional sentiment, Malaysia is less exposed to the threat than its peers

** Still, signs of rising U.S. oil supply and doubts about OPEC members’ compliance with output curbs do not bode well for the ringgit

* 10-year yield dropped 2bps to 3.97% Tuesday

* Govt sold RM3b of 7-year bonds at 3.882% Tuesday with bid-to-cover ratio of 2.35 times

* Bids at Tuesday’s debt sale likely came from both trading accounts and buy-and-hold investors, Winson Phoon, head of fixed income research with Maybank Kim Eng Securities in Singapore, wrote in note

** Relative cheapness of 7-year govt notes vs 5- and 10-year debt in the past couple of months has more or less normalized

* Malaysia’s weaker-than-expected factory output report Tuesday supports the view for GDP growth to moderate to 5.5% in 2018 from 5.9% last year, Nomura Holdings Inc economists Euben Paracuelles and Brian Tan wrote in a note Tuesday

** This should reduce the need for further tightening;

** Window for more interest-rate hikes is closing with the general election expected to be called in late April or early May