Friday 29 Mar 2024
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KUALA LUMPUR (Jan 4): The ringgit continued on its weakening path to trade at 4.4983 against the U.S. dollar, its lowest since the 1998 Asian financial crisis, as investors eye the various struggles Malaysia faces in terms of high foreign shareholding in the local bond market and Bank Negara Malaysia (BNM)’s measures to curb volatility in the local currency.

Meanwhile, other regional currencies such as the Singapore dollar, Indonesian rupiah and Hong Kong dollar were strengthening against the U.S. dollar.

Hong Leong Investment Bank economist Sia Ket Ee noted while the volatility of the ringgit has calmed, the currency has been drifting lower and lower against the greenback.

“The ringgit’s continued weakness is mainly due to external factors. Investors are looking at the high foreign shareholding in the local bond market as well as the central bank’s struggles to curb volatility in the currency, which will have implications on exports.

“Eventually, however, with the measures put in place by BNM, the ringgit should show better performance as the country’s reserves are rebuilt. So a massive outflow is unlikely,” he told theedgemarkets.com via telephone.

Recall the central bank had announced a series of measures to stabilise the onshore market, which includes a requirement for exporters to convert 75% of export proceeds — from Dec 5 onwards — into ringgit.

Sia added while global crude oil prices were the main focus previously, investors are now considering the current high yield of the local bond market, as a large amount of Malaysian government securities (MGS) are coming to maturity in 2017.

“Local bond yields are high, and a sizeable amount of MGS are hitting maturity this year, which means the govt will have to roll over at a higher cost. This would mean that the higher revenue from the improving crude oil price would be offset by the higher debt, subduing the crude oil factor for the ringgit,” he said.

On the other hand, the greenback has also been strengthening due to the aggressive stance by the US Federal Reserve on interest rates, as well as U.S. President elect Donald Trump’s protectionist view on the country’s economic and trade policies, added Sia.

However, clarity on the implementation of these protectionist policies will only emerge, when Trump takes office on Jan 20.

“As more certainty and data emerges within the first quarter of 2017, we could potentially see the ringgit strengthening to levels around 4.40 against the U.S. dollar.

“Also, a strong U.S. dollar would also hurt corporates in the U.S., while a high interest rate would mean higher borrowing costs for corporates. So things will have to balance out eventually,” said Sia.

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