The top forecasters for the ringgit see declines slowing for Asia’s worst-performing currency next year as commodities stabilise.

Macquarie Bank Ltd, which turned negative in 2013 and topped Bloomberg rankings for the four quarters ended September 30, is less bearish given the currency’s 17% drop this year better reflects slumping oil and slowing Chinese growth.

The Sydney-based lender predicts a 4% decrease by March 31 based on Thursday’s closing prices, while Commerzbank AG, the second-best forecaster, sees a 2.8% depreciation by the end of 2016.

The ringgit has strengthened 6% since reaching a 17-year low in September as Brent crude steadied, allaying concern that revenue will deteriorate for Asia’s only major net oil exporter.

Debt-ridden state investment company 1Malaysia Development Bhd is winding down operations, bolstering confidence in the nation’s finances, while investigations are still ongoing into political donations channelled into Prime Minister Datuk Seri Najib Razak’s bank accounts.

“While Macquarie maintains a modestly negative view on commodities into 2016, we think most of the big moves from the commodity angle are behind us and that takes one major monkey off the ringgit’s back,” said Nizam Idris, head of foreign- exchange and fixed-income strategy at the bank in Singapore.

“We no longer pick the ringgit as the main underperformer” in emerging Asia and it would move more in line with the region, he said.

Strategists lowered their ringgit forecasts in the past six months as Brent’s plunge puts strains on the budget in Malaysia, which derives 22% of state revenue from energy-related sources.

The Southeast Asian nation is also the world’s second-biggest producer of palm oil. The Bloomberg Commodity Index has dropped 23% this year, while Brent is down 25%.

The rout in resources may cause the government to miss its target of balancing the budget by 2020, according to an October 1 article in the New Straits Times newspaper citing Najib.

The deficit would narrow to 3.1% of gross domestic product in 2016 from 3.2% this year, the Finance Ministry said in October.

While Nizam sees the ringgit’s two-year reign as emerging Asia’s worst performer coming to an end, he still sees it weakening to 4.40 a dollar by the end of the first quarter and 4.45 by June 30. That’s more bearish than the 4.37 and 4.36 median forecasts in a Bloomberg survey.

Macquarie and Commerzbank both predict a stronger US currency next year, supported by the Federal Reserve’s interest-rate increases, which will put pressure on Asian exchange rates.

The German bank forecasts the ringgit will climb to 4.10 by year-end, before weakening to 4.25 by June 30 and 4.35 by December 31. It was at 4.2280 at the close in Kuala Lumpur on Thursday.

Commerzbank strategist Charlie Lay said the outlook hinges on the fact commodity prices did not collapse another 50% in the coming year or so. Brent has dropped about 60% from its 2014 peak to around US$43 a barrel.

1MDB sale

The ringgit “won’t be a relative outperformer like the Philippine peso or India’s rupee but may not be the worst for the second year running,” said Lay in Singapore. However, it is contingent once again on stable politics and commodities.

Nizam said he held a more positive view for the ringgit over the next six months than the peso and Thai baht, despite predicting losses for all of them.

Sentiment improved for Malaysia’s currency last month after China General Nuclear Power Corp agreed to buy 1MDB’s power assets for RM9.83 billion, which will help reduce the RM42 billion of debt accumulated by the company in the five years since its formation.

Its finances are also set to improve as it finalises the sale of a property project in Kuala Lumpur known as Bandar Malaysia.

Improve sentiment

Najib, who chairs 1MDB’s advisory board, has drawn public criticism over the political donation he received from the Middle East that’s led to tensions within his ruling Umno and spurred anti-government street protests.

The worst is probably over for the ringgit, with markets pricing in a lot of the bad news, according to Australia & New Zealand Banking Group Ltd, the top forecaster of emerging Asian currencies in the third quarter.

However, oil prices may remain subdued, which would weigh on Malaysia’s current-account balance and growth, said the bank’s senior foreign-exchange strategist Khoon Goh.

“How oil prices fare will remain a key risk factor for the ringgit next year, alongside the risk of a slowdown in domestic demand,” said Goh.

With 1MDB expected to resolve its debt woes now that it has sold its power assets, with a sale of their land holdings not far off, this should help improve sentiment.