Scandal hit ringgit falls to lowest since 2006

The Malaysian ringgit dropped to 3.76 against dollar, level last seen during 2006 as investors pull out money out of the scandal hit country. Strong dollar over Friday's stronger than expected non-farm report also contributed to the run.

• A growing scandal at state backed fund, 1Malaysia Development Bhd could lead to step down of Prime Minister Najib Razak from the fund's advisory board. Politically inspired deal making has pushed the firm's debt to $11.5 billion and prospects run high that it might default over the loans.
  
  
• Investors are worried about contagion effect. A debt default by the fund could lead to wider default and sharp rise in cost.

In an environment, where market is worrying on rate hike by Federal Reserve and strong dollar, investors are likely to withdraw more funds from the country, which could push Ringgit to greater crisis, since foreign investors as of now owns 35% of Malaysian bonds.

Moreover Malaysian economy continues to show weakness. Exports have dropped by 8.8% in April from a year ago. Weakness in the economy would prevent the country's central bank from raising interest rate, which now stands at 3.25%.

Ringgit might lose further grounds against dollar, if the current scandal breaks into greater political uncertainty.