Malaysian ringgit seen extending three-month rally

The Malaysian ringgit scaled an eight-year high on Wednesday and is expected to advance its three-month rally on the back of a rise in China's currency and with help from authorities who want to quell imported inflation.
The ringgit rose to a high of 3.6645 per dollar, from 3.6680 before markets closed for a holiday Tuesday. The currency has gained 3.1 percent this year and 3.7 percent since the central bank ended the currency's peg to the dollar last July.
Dealers in Kuala Lumpur said dollar selling accelerated once the exchange rate fell below the 3.67 level.
They said authorities would be willing to let the currency strengthen further, perhaps even to 3.6 per dollar, as China lets the yuan appreciate.
China, Malaysia and other Asian countries face criticism from US politicians who say that they are keeping their currencies artificially weak to gain advantage in trade.
"Ringgit will benefit from any revaluation in the Chinese yuan," said a Kuala Lumpur-based dealer. "In fact, the pace of appreciation could be similar to the Chinese yuan. They'll allow it to rise gradually."
The yuan has gained 0.8 percent this year and 1.2 percent since the central bank revalued the currency in July to 8.11 per dollar from 8.28.
On Wednesday, the Chinese currency weakened to 8.0105 per dollar from Tuesday's close of 8.0050. Some analysts and traders said the ringgit could move higher irrespective of what China does because the Malaysian currency has lagged its regional rivals in a broad-based Asian currency rally against the dollar this year.
The Indonesian rupiah has gained more than 9 percent this year, the Thai baht has risen more than 8 percent and gains in the South Korean won have exceeded 5 percent since the start of January.
J.P. Morgan Chase Bank currency strategist Claudio Piron recommended buying the ringgit through two-month non-deliverable forward contracts for an end-June target of 3.60 per dollar.
"The drivers for a stronger ringgit have long been in place," Piron said in a report, adding that ringgit was the most undervalued currency in Asia.
"FX appreciation policy is taking hold, while encroaching Chinese yuan revaluation risk adds to US dollar/ringgit downside.