Foreign exchange professionals are betting Malaysia will revalue the ringgit if China allows the renminbi to appreciate against the dollar. "It's a good bet. They have no choice, but to follow China's lead," said a hedge fund manager based in New York, who is considering putting on dollar/ringgit positions. "The market is assuming that China will revalue by the first quarter and that Malaysia could move by Q2," said Lee Chee Pin, head of FX at Bank of America in Singapore.
Speculation on the Chinese renminbi, already at fever pitch, increased last week when Chinese president Hu Jintao explicitly promised George W. Bush China is committed to reforming the currency at the Asia-Pacific Economic Cooperation forum in Chile. The timing of the move is still unknown.
Players noted positions in the ringgit have predominantly been placed in non-deliverable forwards, explaining that no formal options market exists because it is frowned upon by the authorities. Three and six month NDF contracts have seen the most interest, noted traders. "There's a strong economy story that is putting pressure on Malaysia to appreciate the fact the whole of Asia has appreciated against the ringgit and of course China widening its band is an additional reason for the Malaysian authorities to re-peg," said Callum Henderson, Asian head of FX strategy at Standard Chartered in Singapore. The currency, which is currently pegged at the U.S. dollar at MYR3.8, could be re-pegged at MYR3.5-3.6, noted Henderson.
