KUALA LUMPUR: The ringgit is likely to drop further against the US dollar, if the euro were to fall sharply following the European Central Bank’s (ECB) upcoming decision on quantitative easing (QE), according to a report by AmBank FX Research.
The research firm said QE in the eurozone is expected to generate huge swells and volatile shifts in sentiment, and that every one percentage point (ppt) drop in the euro’s value against the US dollar is also likely to cause a 0.44ppt drop in the ringgit’s value against the greenback.
The impact of the ECB’s policies will go beyond European shores, affecting Asian currencies, among others.
Based on AmBank FX’s regression analysis, the Korean won is likely to be least affected, followed by the Taiwanese dollar.
“The Philippine peso, baht and Singapore dollar will likely be most vulnerable to the euro’s depreciation,” it said.
For every 1ppt drop in the euro, AmBank FX said the peso will likely fall by 0.61ppt against the US dollar, while the baht is expected to fall 0.6ppt and the Singapore dollar, 0.51ppt against the greenback.
“This is a reflection of ... Europe as an exceedingly important market for Asia, if not on par with the US,” it added.
This article first appeared in The Edge Financial Daily, on January 23, 2015.