Ringgit hovers near 4.20/USD as volatile oil weighs

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KUALA LUMPUR (May 27): Ringgit continues to trade near the 4.20 support level versus dollar, as volatile crude prices and equity outflows take a toll.

* USD/MYR steady at 4.1875 after capping a fourth week of gains

** Support 4.1565, 4.1500, 4.1413; resistance 4.2020, 4.2437, 4.2535

* Overseas investors pulled $470m from Malaysian stocks in May, according to latest exchange data up to May 23

* USD/MYR faces near-term resistance at last November’s high just above 4.20, and ringgit may underperform if weak global growth fuels a sharper correction in oil prices, says Trang Thuy Le, Asia FX strategist at Macquarie Bank in Hong Kong

** China’s yuan remains key for Asia FX’s outlook; USD/Asia may climb further heading into the G-20 summit with China data expected to stay weak in the coming months before policy stimulus ramps up

* Malaysia’s 10-year govt bond yield steady at 3.82%

* Investors are broadly neutral on EM, and they’re bearish on the prospects for U.S.-China trade talks although most positioning doesn’t reflect that view, Morgan Stanley strategist Min Dai wrote in a note Friday

** This suggests that risks remain on the downside as funds may gradually add short positions if tensions continue to escalate 

** In April, investors cut exposure to several emerging markets including Malaysian bonds and FX

* Malaysia’s foreign-exchange reserves -0.6% to $102.8b in the first two weeks of May, biggest drop this year: central bank data

* CPI +0.2% in April y/y vs est. +0.4%, official data showed Friday

* BNM is unlikely to ease policy again this year, even though the real interest rate remains high and YTD inflation averages below the central bank’s annual projection of 0.7%-1.7%, according to note from UOB

** Economy will derive support from a resumption of infrastructure projects and and an expected recovery in commodity prices

* Malaysia will pursue a joint complaint with Indonesia to the WTO on the EU’s palm-bio-fuel restrictions, Primary Industries Minister Teresa Kok said Friday

* Govt is in talks with China-based contractors for compensation relating to RM9.4b of pipeline projects, Finance Minister Lim Guan Eng said Saturday