Slumping ringgit rallies as Fed rate signal eases pressure from lower oil prices

Malaysia's ringgit rose by the most in six weeks after the Federal Reserve signaled it will raise interest rates.
Malaysia's ringgit rose by the most in six weeks after the Federal Reserve signaled it will raise interest rates.PHOTO: AFP

KUALA LUMPUR (BLOOMBERG) - Malaysia's ringgit rose by the most in six weeks after the Federal Reserve signaled it will raise interest rates gradually once it tightens policy this year, alleviating pressure on the currency that's been hit by falling oil prices.

Asian currencies have declined over the past month amid prospects of higher U.S. rates, with the ringgit leading losses as brent crude prices that are half what they were at their 2014 peak weigh on earnings for the oil exporter. While a weaker currency may boost the nation's competitiveness in overseas markets, it threatens to push up inflation, with a report Friday forecast to show an acceleration in May.

"Asian currencies, including the ringgit, are reacting to the Fed comments," said Wong Chee Seng, a foreign-exchange strategist at AmBank Group in Kuala Lumpur.

The ringgit gained by the most since May 6, rising 0.7 per cent to 3.7318 per US dollar as of 9:42 a.m. in Kuala Lumpur, data compiled by Bloomberg show. It earlier climbed to 3.7280, the highest level in almost a week and trimming the past month's loss to 4.4 per cent.

Malaysia's consumer prices increased 2.1 per cent in May from a year earlier, the fastest pace in four months and more than April's 1.8 per cent pace, according to the median estimate in a Bloomberg survey.

Fed Chair Janet Yellen said late in the U.S. Wednesday that a pickup in the economy is keeping it on track to boost interest rates this year, though the pace of tightening is likely to be more gradual than previously anticipated.