Bloomberg News

Ringgit Weakens as U.S. Fiscal Cliff Concern Damps Risk Appetite

November 07, 2012

Malaysia’s ringgit was headed for its biggest drop in a month as concern that U.S. President Barack Obama will struggle to negotiate tax increases and avert spending cuts damped appetite for riskier assets.

Obama’s re-election will set up a showdown with the Republican-controlled House over the budget, with the so-called fiscal cliff of more than $600 billion in expiring tax cuts and automatic reductions in expenditure due to take effect in January unless Congress acts before then. Government bonds advanced for a fourth day before a monetary policy meeting today, where Bank Negara Malaysia is forecast to leave its benchmark interest rate at 3 percent, according to all 17 economists surveyed by Bloomberg News.

“The focus shifted very quickly from the presidential election to the fiscal cliff,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “The potential for gridlock in terms of averting the fiscal cliff is really weighing on markets.”

The ringgit declined 0.6 percent, the most since Oct. 8, to 3.0636 per dollar as of 12:28 p.m. in Kuala Lumpur, according to data compiled by Bloomberg. It touched 3.0648, near the 3.0706 level reached on Nov. 6 that was the weakest since Oct. 15. One- month implied volatility, a measure of exchange-rate swings used to price options, held at 5.50 percent.

Malaysian industrial production rose 4.9 percent in September from a year earlier, after contracting a revised 0.2 percent the previous month, a government report showed today. A Bloomberg survey of economists had forecast a 0.6 percent rise.

Government bonds climbed. The yield on the 3.314 percent notes due October 2017 fell one basis point, or 0.01 percentage point, to 3.17 percent, the lowest since July 27, according to Bursa Malaysia.

To contact the reporter on this story: Liau Y-Sing in Kuala Lumpur at yliau@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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