This article first appeared in The Edge Financial Daily, on March 8, 2016.

KUALA LUMPUR: The rebound in crude oil prices yesterday pushed the ringgit to the highest level against the US dollar since the middle of August last year.

The local currency rose to 4.0712 to the greenback before closing 0.39% higher at 4.0963.

So far this year, the ringgit has gained 4.61% from the year-end closing value of 4.2943 against the US dollar. But compared with this time last year, when the ringgit was trading at 3.6780 to the greenback, there was a decline of 11.37%.

While the rise of the ringgit brought cheer to many Malaysians, it had a detrimental effect on export-oriented companies that had reported bigger earnings growth on the foreign-exchange effect last year.

All but two of the 10 biggest decliners on Bursa Malaysia yesterday were either furniture manufacturers, semiconductor players or rubber glove makers.

Economists and analysts said the rise of the ringgit this past week was driven by sentiment, as investors viewed the country’s economy to be heavily reliant on oil revenue.

Reuters reported that oil prices rose yesterday, extending a rally that has lifted crude benchmarks by more than a third from this year’s lows, as tightening supply and an improving global outlook strengthened the sentiment for a market recovery. As at press time, the spot price of benchmark Brent crude was up 40 US cents (RM1.63) to US$39.12 a barrel.

Some, like independent economist Lee Heng Guie, said “volatility still continues in 2016” in the global economy, which could eventually have an impact on the ringgit.

Lee thinks the ringgit will not be worse off than the low of 4.4812 against the US dollar last year and his forecast ranges between 4 to 4.30 by end-2016. But he said factors like the US Federal Reserve’s (Fed) decision on how often and how much to raise its interest rates this year, China’s growth and whether the domestic economy needs monetary support will all have an impact on the ringgit.

“As long as the US economy is growing, capital flows into emerging markets will stay there because fears of a global slowdown or a recession will subside,” Lee said yesterday.

Last week, the US Department of Labor reported a 242,000 increase in jobs in January, maintaining the unemployment rate at 4.9%. Yet, the average hourly wage fell for the first time in two months, Bloomberg reported.

This kind of mixed data brought some hope to investors for the Fed to delay its interest rate hike, where chair Janet Yellen initially indicated would be done every quarter this year. But if the US central bank sticks to its plan of raising the rate four times, foreign liquidity could revert back to the US, said Lee.

“And there is also the domestic factor. While the general expectation is that Bank Negara Malaysia will maintain the overnight policy rate, it remains to be seen whether the country’s economic growth would need further support. Already, January 2016’s export drop was a negative surprise. It can bring an impact to the current account,” Lee said.

He, however, said other indicators like the country’s foreign reserves persevering (at US$95.6 billion as at Feb 15), and the net inflow of foreign liquidity into the equity market lent support to the ringgit. MIDF Research said in a note yesterday foreign investors’ net buying amounted to RM564.7 million year-to-date (up to last Friday).

The FBM KLCI also breached the 1,700-level yesterday morning, before closing 5.44 points or 0.32% higher at 1,697.93. But export stocks took the brunt, given the strengthening of the ringgit. TA Securities analyst Wilson Loo said the worst decliner, Top Glove Corp Bhd, was most susceptible to the ringgit’s gain among other glove makers, as its earnings growth last year was heavily supported by a strong US dollar.

“Some other rubber glove manufacturers, like Hartalega Holdings Bhd, said they adjust their selling prices according to the ringgit’s movement. If the US dollar is stronger, they will sell the gloves at a lower price.”