Investors march out of Malaysia, bring ringgit to 1998 lows

(Reuters) – Malaysia’s ringgit is trading at lows not seen since the Asian Financial Crisis as outflows, foreign currency hoarding and a strong dollar pile on pressure.

The currency is the first in Asia to break below October 2023 levels on the dollar. It touched 4.801 to the dollar on Wednesday, its weakest since January 1998.

Receding bets on U.S. interest rate cuts are also driving the gap between 10-year U.S. and Malaysian rates back toward October’s 16-year wides in favour of U.S. yields.

The weakness defies steadiness in oil prices – a Malaysian export – and prospects of recovery in electronics exports. It shows investors have little appetite for Malaysian assets.

“Weakness cannot really be blamed on speculative flows since this has already largely been curbed since a policy ban on ringgit offshore trading since 2016,” said Rong Ren Goh, fixed income investments director at Eastspring Investments in Singapore. “Weakness is driven by real flows.”

BY THE NUMBERS

** Malaysia’s trade surplus narrowed to 10.12 billion ringgit in January, with imports growing faster than exports.

** Portfolio flows have been negative for much of the past decade, hitting RM50.6 billion (US$10.6 billion) in 2022 – the largest since 2008 – and RM45.7 billion last year.

** Since loosening requirements on exporters’ FX conversion in 2021, businesses’ foreign currency deposits have surged nearly 70 per cent to hit a record 138.4 billion ringgit in Dec. 2023, according to central bank statistics.

** The FX market is short ringgit, according to Reuters’ polling, though not at stretched levels.

THE RESPONSE

Malaysia’s central bank, in a statement released on Tuesday, said the recent performance of the ringgit was largely due to external factors and the finance minister has said he expects a rebound in the currency as U.S. interest rates fall.