Ringgit slides to pre-peg levels on commodity rout

Malaysia's ringgit slumped on Tuesday, returning to the pre-peg levels seen during the Asian financial crisis, as falling commodity prices hurt confidence further. Most emerging Asian currencies turned firmer on a rise in the Australian dollar after the Reserve Bank of Australia (RBA) toned down calls for a further fall in the local unit.
The ringgit lost as much as 0.4 percent to 3.8685 per dollar, its weakest since September 2 1998, a day before the currency was pegged at 3.8000. Malaysia's stocks lost 1.1 percent, underperforming Southeast Asian equities. Most government bond prices also fell. Sentiment on the currency's financial assets has been already hurt by the political pressure on Prime Minister Najib Razak as a result of the scandal over indebted state-fund 1MDB.
Traders were wary of possible intervention by the central bank to support the worst-performing Asian currency this year. But doubts also lingered over how aggressively Bank Negara Malaysia would intervene to prop up the ringgit given its depleting ammunition. In the first half of July alone, Malaysia's international reserves were down $5 billion. The central bank was on Monday spotted intervening in the market, but it did not defend specific levels, traders said.
On Tuesday, the ringgit pared earlier losses, tracking a rebound in regional currencies, traders said. The ringgit lost 1.3 percent against the dollar in July when the central bank was spotted heavily intervening, traders said. That compared with a 4.7 percent loss in South Korea's won and a 4.0 percent slide in Thailand's baht. A strong won is a headache for South Korea as the yen's weakness helps Japanese exporters. Thailand's top policymakers have said a weaker baht is better than a rate cut for the economy.
RBA HELPS ASIA FX Most emerging Asian currencies turned firmer after the Reserve Bank of Australia dropped a reference to a further decline being necessary, saying only that the Aussie was adjusting to weak commodity prices. Singapore's dollar reversed earlier losses after falling to 1.3809 per US dollar, its weakest since March 23. The city-state's currency earlier came under pressure on concerns about a slowing economy. Activity in Singapore factories including the key electronics sector contracted in July, a survey showed on Monday. The won also ended the local session firmer as traders covered short positions on the Australian dollar's strength.