Malaysian ringgit forwards are headed for their biggest weekly decline since June as signs of a recovery in the U.S. bolster the case for the Federal Reserve to unwind stimulus that has fueled gains in emerging-market assets.
Retail sales in the world’s largest economy rose for a fourth straight month in July and claims for jobless benefits fell to the least since October 2007, reports this week showed. The Fed will begin to taper its bond purchases at its Sept. 17-18 meeting, according to 65 percent of economists in a Bloomberg News survey. Malaysia’s sovereign rating could come under pressure due to the government’s weakening fiscal position, Moody’s Investors Service said yesterday.
“Some of the data, especially the jobless claims, have come in better than expected, so that has reinforced the Fed tapering,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “What Moody’s said certainly weighs on the market, but it’s not a mover.”
Twelve-month non-deliverable forwards dropped 1.3 percent, the largest decline since the five days through June 21, to 3.3464 per dollar as of 9:56 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The contracts were steady today. They traded 2 percent weaker than the spot rate, which was little changed for the day and down 0.7 percent for the week at 3.2787.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose two basis points, or 0.02 percentage point, today to 8.33 percent.
Malaysia faces structural pressures without tax reform and the country has a narrow revenue base and relatively high government deficits, Moody’s analysts including Christian de Guzman wrote in an e-mailed report. Fitch Ratings last month lowered its outlook on Malaysia to negative from stable, citing concern over the nation’s public finances.
The authorities are committed to fiscal reforms including further rationalizing of subsidies and broadening the tax base, the government said in a statement to Bloomberg News yesterday in response to Moody’s comments.
The yield on the 3.48 percent sovereign notes due March 2023 retreated eight basis points this week to 3.87 percent, according to data compiled by Bloomberg. The rate rose one basis point today.
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