Ringgit forwards point to further weakness weighed by oil, 1MDB

[KUALA LUMPUR] Offshore forwards show the ringgit may weaken another 2.7 per cent in the next 12 months as Brent crude prices below a 10-year average hurt export earnings, combined with controversy over a state investment company.

Twelve-month non-deliverable forwards retreated 0.2 per cent to 3.9145 a dollar as of 11:20 am in Kuala Lumpur, data compiled by Bloomberg show. The contracts declined to a record 3.9608 on July 8. The onshore ringgit fell to its lowest this month since the Asian financial crisis and is the region's worst-performing currency in 2015.

As Asia's only major net oil exporter, a 50 per cent slump in Brent crude from last year's peak is weighing on the ringgit, just as a looming US interest-rate increase may spur capital outflows. Investor sentiment has also deteriorated amid a probe into funds linked to 1Malaysia Development Bhd. that has embroiled Prime Minister Najib Razak.

"Downward pressure on oil prices, a stronger US dollar on Federal Reserve rate hikes this year and ongoing local political news are all weighing on ringgit forwards," said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd in Singapore. "I expect to see a further weakening in the spot rate given the stronger US dollar." The ringgit was little changed in onshore trading Thursday at 3.8070 a dollar, and is down 0.3 per cent from July 10, according to prices from banks compiled by Bloomberg. It fell to the 1997-98 Asian crisis low of 3.8130 this month and has lost 8.2 per cent in 2015. Malaysian financial markets will be shut Friday for a Muslim holiday.