Ringgit heads for worst week since September on oil, 1MDB woes

A person counting Malaysian ringgit notes.
A person counting Malaysian ringgit notes. PHOTO: ST FILE

KUALA LUMPUR (BLOOMBERG) - Malaysia's ringgit headed for its biggest weekly drop in 10 months on Friday (July 22) as lower crude oil prices and the fallout from a controversy involving state investment firm 1MDB sapped demand for the nation's assets.

The ringgit fell 0.5 per cent on Friday, and 2.8 per cent this week, to 4.0608 per US dollar as of 10.34am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. The five-day decline is the biggest since the period ended Sept 25, 2015.

The Malaysian currency weakened more sharply against the Singapore dollar, dropping to 3.0021 per Singdollar as of 11.38am, down 0.76 per cent from its close on Thursday of 2.9794.

The ringgit retreated as Brent crude's 2.8 per cent decline in five days clouded the outlook for the oil-exporting country's revenues, and after a slew of better-than-expected US data boosted demand for the US dollar.

Also, the authorities in Singapore and the US moved to seize assets linked to alleged fraud involving 1Malaysia Development Bhd, the latest chapter in the troubled company's woes that contributed to the ringgit's biggest annual drop since 1997 last year.

"The market is now looking at pricing in a higher probability of a rate hike by the Fed this year," said Mr Irene Cheung, a foreign-exchange strategist in Singapore at Australia & New Zealand Banking Group.

Oil prices have affected the ringgit and the latest developments on 1MDB may have "an impact on the political front, which we don't know how it will work out and how serious it is", she said.

More than US$3.5 billion was misappropriated from 1MDB, and about US$1 billion was laundered through America's banking system, the US Justice Department said in filings on Wednesday.

The Monetary Authority of Singapore said on Thursday it seized S$240 million in assets from individuals linked to alleged fraud at 1MDB. The Malaysian government said it will cooperate with lawful investigations of local companies or its citizens.

Futures show a 45 per cent chance of the Federal Reserve increasing interest rates by December, compared with 9 per cent at the end of June, after data on retail sales, housing and employment in the US beat economists' estimates.