KUALA LUMPUR, Aug 2 — The ringgit headed for its biggest weekly loss in more than a month after Fitch Ratings lowered Malaysia’s credit outlook to negative, adding to concerns global funds will accelerate asset sales.

Fitch cited rising debt levels for the move and said the nation’s public finances are its “key rating weakness,” helping spur a 1.2 per cent plunge in the benchmark share index this week, the worst performance since March. Overseas investors cut holdings of Malaysia’s fixed-income securities by 5 per cent to US$66 billion (RM215 billion) in June, central bank figures show, on prospects the Federal Reserve will pare monetary stimulus.

“The ringgit’s drop this week was accelerated by the Fitch downgrade,” said Hamish Pepper, a currency strategist at Barclays Plc in Singapore. “People are pricing in a tapering from the Fed. The reason the ringgit will be most vulnerable is the possibility of further outflows from the bond market.”

The ringgit declined 1.4 per cent this week to 3.2535 per dollar as of 10:13am in Kuala Lumpur, the biggest drop since the period ended June 21, according to data compiled by Bloomberg. It fell 0.3 per cent today and earlier reached a three-year low of 3.2566.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 19 basis points, or 0.19 percentage point, to 8.98 per cent today and was 129 basis points higher than a week ago.

Export slump

A report from the statistics department on August 5 may show Malaysia’s exports contracted 7.3 per cent in June from a year earlier, a fifth straight monthly decline, according to the median estimate in a Bloomberg survey of economists. The current account, the broadest measure of trade, slipped 62 per cent in the first quarter to RM8.7 billion.

Malaysia will announce steps in its October budget to tackle risks to the fiscal position outlined by Fitch, Prime Minister Datuk Seri Najib Razak said yesterday, without elaborating.

Government bonds retreated this week. The yield on the 3.48 per cent notes due March 2023 climbed 23 basis points to 4.11 per cent, the biggest increase since the five days ended May 31, data compiled by Bloomberg show.

The dollar’s 14-day relative-strength index against the ringgit climbed past 70 in the past three days, a level that signals a reversal. — Bloomberg