Ringgit Rises to Two-Month High on Oil’s Rally, Fading Fed Bets

(Bloomberg) -- Malaysia's ringgit rose to a two-month high as crude prices rallied this week and the dollar declined after investors reduced bets that the Federal Reserve will raise interest rates in 2016.

The currency has recouped all its losses from the turmoil that hit global markets when the U.K. voted to leave the European Union a week ago, as Brent crude climbed 2.2 percent from June 24, set for its biggest gain since the five days ended May 13. The rebound in commodity prices brightens the outlook for Malaysia as Asia's only major net oil exporter and a producer of palm oil.

The ringgit strengthened 0.8 percent to 3.9980 per dollar at the close in Kuala Lumpur and earlier reached 3.9818, the highest since May 4, according to prices from local banks compiled by Bloomberg. It rose 2.3 percent for the week, the most in three months.

“Sentiment remains buoyant as equities and oil prices stay supported,” said Christopher Wong, a foreign-exchange strategist at Malayan Banking Bhd. in Singapore. “Prospects of a fading Fed rate hike also help.”  

The currency trimmed its gains of as much as 1.2 percent on Friday after exports unexpectedly contracted in May. Shipments fell 0.9 percent compared with the 2 percent increase forecast by economists in a Bloomberg survey. The trade surplus slumped to 3.26 billion ringgit ($816 million) from 9.06 billion ringgit in April. That's a sharper drop than the 8.26 billion ringgit expected.

Traders have pared bets for a U.S. rate increase by December to just 9 percent, compared with 50 percent when the U.K. went to the EU referendum polls on June 23, futures show. That's helped quell concern that higher rates in the world's biggest economy would diminish the appeal of emerging-market assets and spur capital outflows.

Government bonds rallied this week. The 10-year yield dropped 20 basis points to 3.71 percent. That's the biggest decrease since January, data compiled by Bloomberg show. The five-year note yield fell 15 basis points to 3.32 percent, the most since December.

To contact the reporter on this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net. To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Simon Harvey, Naoto Hosoda