This article first appeared in The Edge Financial Daily on May 15, 2019

KUALA LUMPUR: Global risks, including those currently posed by the Sino-US trade tensions, will make it challenging for emerging market currencies, including the ringgit, to stay firm, said UOB Research.

In a macro note to clients yesterday, its senior economist Julia Goh said that currently the Chinese yuan leads the retreat in Asian currencies, which in turn leads to the pullback in other emerging market currencies.

“US dollar/ringgit edged closer to 4.17 this morning (yesterday). The highest level reached in recent months was 4.2020 at end-November last year. The broad US dollar strengthed and in cautious mood amid escalation of US-China trade tensions weighing on the ringgit,” she said.

The ringgit, which sank further to 4.1715 yesterday, has fallen more than 5% against the greenback over the past year. Regionally, it is not the worst performing, as South Korea’s won and China’s yuan lead the pack, having declined 11.37% and 8.45% respectively over the past year.

Meanwhile, with Malaysia’s first quarter’s (1Q19) gross domestic product (GDP) data to be released tomorrow, UOB said it forecasts Malaysia’s real GDP growth to slow to 4.4% year-on-year (y-o-y) in 1Q19 from 4.7% y-o-y in 4Q18.

“Weaker performances across all sectors, except for the agriculture sector, are key reasons for the slower growth trajectory in 1Q19.

“Domestic demand is anticipated to remain a key growth driver in 1Q19, albeit at a moderate pace. Private consumption and investment growth are likely to soften further in view of sluggish consumer and business sentiments during the quarter,” said Goh.

Goh added that UOB maintains its view for a growth uptick in the second half of 2019 amid the revival of key infrastructure projects, policy clarity, looser monetary policy, and a lower base effect.

“Our estimate for full-year GDP growth is 4.6%,” she added.