Ringgit drops on USD strength, BNM easing talk

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KUALA LUMPUR (April 25): Malaysia’s ringgit falls as dollar strength weighs on emerging Asian currencies, and as speculation builds about a possible interest-rate cut.

* USD/MYR rises 0.2% to 4.1350, extending gains over the past month to 1.6%; support 4.0930, 4.0740, 4.0545; resistance 4.1500, 4.1655, 4.1785

* MYR will be a modest underperformer in the region as portfolio flows are working against it, says Irene Cheung, senior strategist for Asia at ANZ in Singapore

** BNM will probably cut rates at its next meeting on May 7

** Asian FX will be driven by rising dollar, with USD strength expected to persist given increasing prospects of policy easing in Australia and New Zealand, and with Bank of Canada having removed its tightening bias 

* UOB is penciling in a possible 25bp rate cut by BNM next month due to subdued inflation and below-potential growth, senior economist Julia Goh wrote in note Wednesday

** Such a move would reverse the 25bp hike delivered in January 2018, and MYR is unlikely to weaken significantly

** Policy easing would support growth and lower borrowing costs at a time the govt is reviving projects such as the East Coast Rail Link
* Nation’s 10-year bond yield drops 2bps to 3.83%

* Govt will auction RM3b of 2026 bonds on April 29

* Annual inflation was 0.2% in March versus -0.4% the previous month, government data showed Wednesday