Ringgit forwards extend weekly losses as oil re-enters bear market

The ringgit dropped 0.4 per cent to 3.8063 a dollar in Kuala Lumpur on Thursday, the biggest loss since July 6.
The ringgit dropped 0.4 per cent to 3.8063 a dollar in Kuala Lumpur on Thursday, the biggest loss since July 6.PHOTO: AFP

KUALA LUMPUR (BLOOMBERG) - Ringgit forwards headed for this year's longest stretch of weekly declines as oil re-entered a bear market, eroding Malaysia's export earnings.

The contracts dropped for a fifth week, suggesting traders are pricing in further weakness for Asia's worst-performing currency. A decrease in the nation's foreign reserves to a five-year low signaled the Malaysian central bank may be intervening to curb losses, which have been driven by a plunge in crude oil and an investigation into funds linked to 1Malaysia Development Bhd. that's weighing on investor sentiment.

The ringgit dropped 0.4 per cent to 3.8063 a dollar in Kuala Lumpur on Thursday, the biggest loss since July 6. It has fallen 8.1 per cent this year and reached a 16-year low of 3.8130 in July.

"The ringgit will continue to remain under pressure given the fall in oil prices and data showing a fall in reserves," said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "The negative news flow surrounding 1MDB is also not helping sentiment."

Ringgit one-month non-deliverable forwards retreated 0.5 per cent from July 17 to 3.8263 per US dollar as of 9:58 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The contracts were steady Friday and the spot rate was little changed for the week at 3.8077.

The West Texas Intermediate benchmark for oil returned to a bear market and was at US$48.79 a barrel in electronic trading in New York, a discount to the US$55.47 for Brent, the yardstick more commonly watched in Asia. A 52 per cent slump in Brent from 2014's high may put pressure on Malaysia's current-account surplus as the only major net oil exporter in Asia. About 22 per cent of the nation's government revenue is derived from energy-related businesses.

Malaysia's foreign reserves declined 4.7 per cent to US$100.5 billion as of July 15 from two weeks earlier, the central bank reported on Thursday. The holdings are close to the psychological mark of US$100 billion, and a drop below that level for the first time since September 2010 may further hurt sentiment.