Malaysia’s Ringgit Declines on Stock Losses, Recovery Concern

By David Yong

April 20 (Bloomberg) -- Malaysia’s ringgit fell to the lowest level in more than two weeks as Asian stocks declined on concern that the deepening global recession will crimp corporate earnings and steer investors away from emerging-market assets.

The currency dropped for a second day on speculation disagreements among European Central Bank officials on how far to cut interest rates will delay a recovery in the 16-nation economy, sending the dollar higher. The MSCI Asia Pacific Index of regional shares fell by the most in more than a week and the Dollar Index rose to the highest in a month.

“Sentiment is not good on the ringgit as people are still a bit wary” that the equities market rally will fade, said D. Sivadass, a currency forwards trader at EON Bank Bhd. in Kuala Lumpur. “The market is also fixated on the developments in Europe, giving strength to the U.S. dollar.”

The ringgit fell 0.5 percent to 3.6335 per dollar as of 10:42 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency is up 0.2 percent this month.

ECB President Jean-Claude Trichet last week ruled out the prospect of lowering borrowing costs to zero from the current 1.25 percent. Greece’s George Provopoulos and Athanasios Orphanides of Cyprus wanted to keep open the option of deeper rate cuts.

Factory output in the euro area fell 18 percent in February, the biggest drop since records began in 1986, the European Union’s statistics office said April 16. Malaysia depends on the European Union for 12 percent of its exports.

Non-deliverable forwards signal traders are betting the ringgit will weaken 0.2 percent to 3.6425 in three months, compared with expectations for a rate of 3.6235 on April 17. Forwards are contracts in which assets are bought and sold at current prices for delivery at a future specified date.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.