Malaysia's Ringgit Buckling Under Political Pressure

By Jake Maxwell Watts and Ewen Chew 

        SINGAPORE--Malaysia's currency fell to its weakest level against the U.S. dollar since the Asian financial crisis Monday, as political pressure builds against the country's prime minister and Greece's possible exit from the eurozone rattles investors.
        The ringgit is Asia's worst-performing currency this year, down 8.2% against the dollar. On Monday, one U.S. dollar bought 3.808 ringgit, compared with 3.777 before the weekend, its weakest level in more than 16 years. The 3.800 level is psychologically significant for traders, as it marks the government-imposed peg against the dollar during the 1998 financial crisis. That peg was lifted in 2005.
        "The main driver at the open was the heightened political uncertainty surrounding Najib's finances," said Stephen Innes, senior trader at foreign exchange brokerage Oanda, in Singapore. "It's another negative the market was not expecting," he said.
        Political pressure is escalating against Prime Minister Najib Razak after a government investigation for the first time directly connected the premier to a probe of a troubled state investment fund. On Friday, The Wall Street Journal reported that 1Malaysia Development Bhd., or 1MDB, had traced almost $700 million in deposits into what they believe are Mr. Najib's personal accounts. Mr. Najib has denied any wrongdoing.
        Global investors, who own about half of Malaysian government bonds, are increasingly worried the government might have to cover 1MDB's debt. The fund has had to reschedule debt repayments in the past, and investors in recent months have sold off short-term Malaysian government bonds. On Monday, 10-year government bond yields rose 0.06 percentage point to 4.039%, the highest level in nearly a week, and five-year yields rose to 3.627% from a previous close of 3.595%. Bond yields rise when prices fall.
        Malaysia's stock market was down 1.3%, outpacing losses in other Southeast Asian indexes on Monday, and is down 2.8% in the year-to-date.
        Malaysian markets have been under pressure this year as the oil-exporting nation is hit by falling commodity prices, which have nearly halved since July last year. While Fitch Ratings' revised outlook on its investment-grade rating to stable from negative last week eased some concerns about Malaysia's fiscal health, Greece's decision over the weekend to reject bailout terms from its creditors has introduced more uncertainty into an already jittery market.
        Preliminary results of Greece's referendum Sunday show a victory for the "no" campaign, which rejected austerity policies set out by the eurozone and the International Monetary Fund. Creditors have said the outcome imperils future compromise and puts Greece closer to leaving the currency bloc.
        Maybank's head of foreign exchange research Saktiandi Supaat said the ringgit's weakness is partly thanks to the perceived threat of contagion from Greece, but "it's a confluence of events coming at the same time" that have put strain on the currency. "I wouldn't solely put it on political uncertainty but also on oil price as well," he said.
        Write to Jake Maxwell Watts at jake.watts@wsj.com and Ewen Chew at ewen.chew@wsj.com
        (END) Dow Jones Newswires

        July 06, 2015 01:25 ET (05:25 GMT)

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