PETALING JAYA - The ringgit resumed its advance against the US dollar as investors take comfort that crude oil prices will recover over time despite major oil producing countries being unable to come up with a consensus to cut back on production in a meeting in Doha.
The Malaysian currency rose 0.9 per cent against the US dollar to close at 3.886 yesterday, reversing from a 0.6 per cent decline against the greenback at the close of 3.9295 on Monday. Year-to-date, the ringgit has gained 10.3 per cent, making it the top-performing currency in Asia.
According to analysts, ringgit-denominated bonds yesterday attracted some foreign bargain-hunting interest, as sentiment improved in tandem with the recovery of crude oil prices.
This was in contrast to what was seen a day earlier following the disappointing outcome of the weekend meeting between major oil-producing countries in Doha.
"There had been an initial overreaction to the outcome of the Doha meeting, so markets are now recovering, helped by the labour strike in Kuwait, which would significantly affect oil output," AmBank Group foreign exchange strategist Wong Chee Seng said of the oil-driven rebound of the ringgit yesterday.
Analysts said oil would remain a major driver of the ringgit, as Malaysia was still largely perceived as an oil and gas-driven economy.
International oil benchmark Brent rose about 0.8 per cent yesterday to hover at around US$43.25 per barrel as at press time after falling to as low as US$40.10 per barrel on Monday.
The rebound in oil prices was due in part to a labour strike in Kuwait that could cut production by as much as 1.7 million barrels a day, even though a Sunday meeting between the Organisation of the Petroleum Exporting Countries (Opec) and non-Opec members in Doha had failed to reach an agreement to freeze output in order to tackle the ongoing supply glut.
"It seems the current strength of ringgit comes alongside the appreciation of regional currencies against the US dollar.
"Additional support (for the ringgit) comes from firmer crude oil prices, which, in turn, are supported by an ongoing Kuwaiti strike, despite no agreement reached to slash output by the oil producers over a meeting last weekend," CIMB Investment Bank director of regional fixed-income research Nik Ahmad Mukharriz Nik Muhammad said.
According to Nik Ahmad, net foreign inflows in the past few days were moving into ringgit bills market, with indicative yields down by three to seven basis points, while only some residual funds moved into bonds with longer tenures.
Yields on the 10-year Malaysian Government Securities rose about 2.5 basis points to 3.79 per cent, while that for the seven-year notes fell about 3.1 basis points to 3.71 per cent.
Shares on Bursa Malaysia declined yesterday on profit-taking activities, bucking regional trend that saw most equity markets rise in the wake of stabilising oil prices.
The benchmark FTSE Bursa Malaysia KL Composite Index fell 6.53 points to close at 1,711.15 points.