Ringgit surges the most in 43 years on oil gains

KUALA LUMPUR • Malaysia's oil exports have turned the ringgit into Asia's best-performing currency even as analysts say it is the least attractive.

Forecasters are predicting the ringgit will weaken 8.4 per cent this year for the biggest drop in the region, and some of them even see it falling beyond a 17-year low reached in September.

The bearish calls peaked around the end of January, when Swiss investigators said a probe into state-owned 1Malaysia Development Berhad (1MDB) revealed about US$4 billion (S$5.4 billion) may have gone missing.

The ringgit has confounded those calls by surging 9.5 per cent in the last quarter, the most in 43 years. Oil's gains have been a big part of that - crude accounts for 22 per cent of Malaysian government revenue and the nation is Asia's only major net exporter - along with tax increases and spending cuts.

Now 1MDB is adding to the upswing, with the state investment fund agreeing to sell energy assets and pledging to repay RM6 billion (S$2.1 billion) of debt in the coming weeks.

"The ringgit is going to be one of the outperformers in the region in 2016," said Mr Divya Devesh, the Singapore-based foreign-exchange strategist for Asia at Standard Chartered.

"We are looking for a good rebound in oil prices. The market is still shorting ringgit so we might see continued covering of positions, which should also be supportive."

As the Federal Reserve's willingness to be gradual in raising interest rates drove emerging-market currencies towards their best month in 18 years, the ringgit came to the fore, reaching the highest in almost eight months at 3.9085 per US dollar yesterday.

"Given the dovish tone of the Fed, we think that the dollar will likely continue to drift in the coming months and, because of the energy prices, Malaysian exports could be more resilient than we thought initially," said Hong Kong-based macro strategist Trang Thuy Le at Credit Suisse Group.

The ringgit's climb has come even as Prime Minister Najib Razak faces calls from former leader Mahathir Mohamad to quit over US$681 million that appeared in his accounts before the last election in 2013.

Strategists have trimmed their bearish ringgit forecasts by about 3.6 per cent for the three months through June from the end of January, with the currency's outlook largely resting on the sustainability of the rally in oil, gas and petrochemicals, which along with palm oil make up the biggest proportion of Malaysian shipments abroad after electronics.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 01, 2016, with the headline 'Ringgit surges the most in 43 years on oil gains'. Print Edition | Subscribe