Ringgit set for weekly drop on oil-price slump

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KUALA LUMPUR (May 24): Ringgit heads for a fourth week of losses as a slump in crude prices hurts the outlook for Malaysia’s public finances. April inflation figures are due.

* USD/MYR steady at 4.1920 and has gained 0.4% since May 17

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

** NOTE: Brent crude is down 5.8% this week

* Ringgit has been under pressure since late March as the dollar rose and a flight to safety spurred outflows from EM, says Choong Yin Pheng, general manager for fixed income and economic research at Hong Leong Bank in Kuala Lumpur

** USD/MYR’s next key level is 4.20 and ringgit may remain weak in the near term amid trade and geopolitical risks

* MYR, TWD, SGD and KRW are the FX which have been most sensitive to CNY’s movements since the start of trade tensions last year, Morgan Stanley strategists led by Hans Redeker wrote in note Thursday 

** Co. continues to favor long USD/MYR 3m NDF given ringgit’s sensitivity to any sell-off in U.S. equities, the move by Norway’s sovereign wealth fund to drop Malaysian debt and FTSE Russell’s review on the nation’s bonds

** Trade idea initiated early May suggests going long USD/MYR 3m NDF with entry at 4.1597, stop at 4.0700 and targeting 4.3000

* Malaysia’s 10-year sovereign yield is steady at 3.84% and has climbed 2bps this week

* Govt sold RM4b of 10-year bonds at 3.836% at auction Thursday; bid to cover was 1.84 times

** Cover ratio was still healthy but below the average of YTD auctions in the 5-10-year sector, according to note from Maybank Kim Eng Securities

** This may indicate domestic demand remains strong but investors may be less keen to raise positioning substantially in the absence of a fresh catalyst to push the curve lower

* CPI probably rose 0.4% in April after increasing 0.2% in March, according to Bloomberg survey ahead of data due at noon local time

* Foreign-exchange reserves for mid-May due at 3pm; no forecast, holdings -0.1% to $103.4b in the final two weeks of April

* Deloitte Malaysia said local police were at its offices on Thursday to seek assistance in the provision of records related to state fund 1MDB