KUALA LUMPUR (Jan 12): Forex strategists have mixed views on the ringgit's impact from another Movement Control Order (MCO) and the proclamation of emergency, but when contacted by The Edge all said they are maintaining their forecasts for the local currency for now.
Bloomberg reported today that ringgit fell as much as 0.6% to 4.076 against the US dollar, the weakest since Dec 7 last year, amid the proclamation of emergency today and the impending lockdown that will come into force tomorrow. It recovered slightly to trade at 4.058 at the time of writing.
"The initial reaction of the USD-MYR is an unsurprising knee-jerk reaction to the MCO and the state of emergency. These developments are a domestic negative for the ringgit," OCBC Bank forex strategist Terence Wu told theedgemarkets.com.
"Going forward, if the latest round of developments results in a further loss of investor confidence and sentiment in Malaysia, we expect foreign outflows to pick up, and this may cause a more sustained downward pressure on the ringgit," he added.
Meanwhile, Maybank Kim Eng head of foreign exchange research global markets Saktiandi Supaat said the move in USD-MYR in the morning was likely a knee jerk reaction to the state of emergency announcement, reflecting uncertainty over what the state of emergency entailed for social restrictions, economic policy, government functions, etc.
“While the declaration adds on to current ringgit concerns, including downside risks to growth and broader near-term recovery in dollar strength, the extent of ringgit losses from here could be capped,” said Saktiandi, who is also a Member of Parliament in Singapore.
“We note that the declaration itself does not involve curfews, and most government/economic activities will continue as usual, subject to other health protocols. If the declaration is lifted earlier than Aug 1, there may actually be some support to ringgit sentiments from the lifting then,” he added.
For now, Saktiandi maintained his end-2021 USD-MYR forecast at 3.90.
“Shifts in sentiments will depend in part on domestic factors such as progress in eventual vaccine roll-out, and external factors such as commodities and particularly the oil price trajectory.
“If Asia’s growth and trade recovery narrative remains intact, the ringgit can potentially still see some appreciation vs. the US dollar, on net, this year,” said the former lead economist for the Monetary Authority of Singapore.
Saktiandi also noted that despite signs of a US dollar recovery recently, modest US dollar softening may return at some point given its nature as a countercyclical currency, or when US fiscal deficit concerns emerge more strongly.
“If the [US] dollar softens again in the near to medium term, USD-MYR could be weighed down again,” he said.
Meanwhile, Phillip Capital Management Sdn Bhd chief strategist Phua Lee Kerk opined that the state of emergency should not have a significant impact on the ringgit, as the form of emergency has not affected businesses.
"We may see knee-jerk reactions due to uncertainties today. But beyond that, I don't think the impact is huge," he told theedgemarkets.com.
He also opined that the declaration of emergency may clear off the political uncertainties, at least until August.
Phua still maintains his target price for ringgit at 3.87 against the US dollar.
"We are at the high-end side, mainly because we foresee US dollar to weaken against all currencies," he added.
Agreeing with Phua, Socio-Economic Research Centre executive director Lee Heng Guie said the form of emergency should not cause alarm to investors.
"The declaration of emergency is not a military coup. There is no curfew imposed. All the public services still function as usual, so it shouldn't cause alarm to the public and investors," he told theedgemarkets.com.
"Definitely there will be some anxiety on the investment side, but if the government continues to be more transparent in the communication process, that will help to erase the uncertainty on the investor side," he added.
Lee is still looking at ringgit to end the year by 3.95 to 4.00, as he said the country's economy is expected to recover; interest rate is likely to stay low, US dollar is still on the weakening cycle.
Meanwhile, OCBC Bank's Wu expects additional downside pressure on the ringgit in the longer-term horizon, especially relative to other Asian peers where the Covid-19 situation is more contained.
The bank's forecast on ringgit, however, is unchanged at this point. It remains at 3.9578, 3.9714, 3.9508 and 3.9303 against US$1 for the first quarter, second quarter, third quarter and the fourth quarter, respectively.
The forecasts are unchanged because Wu opined that the global US dollar dynamics may exert a more sustained impact on the USD-MYR than the domestic factors beyond the immediate term.
"We expect the USD-MYR to lift to a higher plane in the near term, but we will retain the underlying downward trajectory in 2021 that we currently expect, pending further domestic developments," he said.
Meanwhile, Fitch Solutions senior Asia country risk analyst Darren Tay told theedgemarkets.com that the lockdown and the serious outbreak are the bigger threats to the ringgit's value compared to the emergency, for now.
"The government will likely have to raise the debt limit once again and borrow even more money to finance stimulus in order to support the economy, while the Covid situation is likely to get worse for the next two weeks before the lockdown starts to have an effect on the daily caseloads meaning that it (the lockdown) will very likely be extended."
"Both these factors will be a dampener on investor sentiment, both foreign and domestic, and exert downward pressure on the ringgit," Tay noted.
He said he is still monitoring the situation regarding the ringgit, for which he currently forecasts to be at an average of RM4.05 to US$1 in 2021.
The ringgit touched a one-year high recently to be trading at 3.993 to US$1 on Jan 4 this year from a one-year low of RM4.44 to US$1 recorded on March 23, 2020 — a few days after the first MCO came into place on March 18, 2020.