Malaysia’s ringgit strengthened the most in more than a week on Wednesday as Brent crude rallied overnight to above US$50 a barrel, brightening the outlook for Asia’s only major net oil exporter.
The ringgit gained along with other regional currencies on Wednesday as the Standard & Poor’s 500 Index of US stocks climbed towards its record reached in May, with the positive sentiment rubbing off on Asian benchmarks.
Brent crude has struggled to maintain breaks above $50 and is still down by more than half from its 2014 peak, helping make Malaysia’s currency one of the worst performing this year in emerging markets.
The ringgit strengthened 0.5% to 4.2645 a dollar in Kuala Lumpur, the most since Oct 23, according to prices from local banks compiled by Bloomberg before the central bank meets to decide on its overnight policy rate on Thursday and Friday’s export data. It gained 0.4% on Tuesday.
“Higher oil prices and positive risk sentiment resulting from higher US equities fueled the ringgit’s gains,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore. “I don’t think the OPR or export data will significantly drive the currency’s direction. ”
The FTSE Bursa Malaysia KLCI Index of shares rose 0.5%, adding to Tuesday’s 0.8% gain. While Brent crude climbed 3.6% overnight to $50.54, it was down 0.9% at $50.10 as of the close of local markets on Wednesday.
Policy makers will keep the benchmark rate at 3.25%, according to all 21 economists surveyed by Bloomberg, while exports likely increased 3.6% in September from a year earlier, a fourth monthly advance.
Indonesia’s rupiah also rose to a one-week high on Wednesday amid signs economic growth is accelerating as government spending picks up.
Gross domestic product increased 4.8% last quarter, compared with 4.67% in the previous three months, according to the median estimate in a Bloomberg survey before figures due Thursday. The government has spent 70% of the 2015 budget, President Joko Widodo said on Monday, double the proportion in late June. Sovereign debt has rallied after a report released the same day showed inflation eased to an 11-month low in October.
The rupiah appreciated as much as 0.9% to 13,435 a dollar, the strongest since Oct 23, before closing little changed at 13,558, according to prices from local banks. The currency has rallied 1% this week following a 7% surge in October that was the biggest in emerging markets worldwide.
“There’s an improvement in sentiment toward Indonesia," said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore. “Inflation is coming down and you have government spending up. The rupiah still faces renewed pressure to weaken as the Fed still has to raise rates."
Opinion is divided on whether the Federal Reserve will increase borrowing costs before the end of the year. There’s a 52 chance of liftoff in December and 86% odds of it happening before the end of the first half of 2016, futures contracts show.
The government is expected to disburse as much as 94% of its budget by the end of the year, President Widodo said. He has asked ministries to begin tender auctions for 2016 projects to prevent economic growth from slowing.