Ringgit sees biggest two-day gain since 2013 on fed rate stance

THE ringgit headed for its biggest two- day gain since September 2013 on further signs the US central bank will refrain from tightening policy until the second half, easing concern that cash will flow out from Malaysian assets.

Federal Reserve Vice Chairman Stanley Fischer said Monday in New York there won’t be a “smooth upward path” for rates, with the first increase potentially late in 2015.

The reprieve for Malaysia could be temporary as HSBC Holdings Plc forecasts the nation’s central bank will cut its benchmark rate to 3 per cent from 3.25 per cent in the second quarter.

“Fischer reiterated what the Fed said last week,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp in Singapore, referring to a central bank statement that it will go slow with the pace of increases once they start.

“He certainly didn’t give the market any reason to turn around and buy the dollar.”

The ringgit rose 1.3 per cent to 3.6490 a dollar in Kuala Lumpur, taking the two-day advance to 2.3 per cent, the biggest since September 2013, data compiled by Bloomberg show. It earlier climbed a two-week high of 3.6460.

One-month implied volatility, a measure of exchange-rate swings used to price options, halted a two-day gain and dropped 13 basis points to 10.2 percent.

Malaysia may be vulnerable to fund outflows when US rates rise as global investors own 29 per cent of the nation’s government bonds, compared with 18 per cent for Thailand, according to data from the respective central banks.

The ringgit is still Asia’s worstperforming currency in the past six months due to a combination of falling oil prices and concern that state investment company 1Malaysia Development Bhd will struggle to meet its debt obligations.

Malaysia’s five-year sovereign notes also climbed for a second day, with the yield falling one basis point, or 0.01 percentage point, to 3.62 per cent. That compares with 1.4 per cent for similar-maturity US Treasuries. The federal funds rate is currently zero to 0.25 per cent.

HSBC forecasts Malaysia’s economy will expand 4.8 per cent in 2015, compared with 6 percent last year, citing lower oil prices and a moderation in private consumption when a 6 per cent goods and services tax takes effect on April 1, economists including Su Sian Lim wrote in a report. — Bloomberg