KUALA LUMPUR (Aug 3): The Malaysian ringgit now sits at a record low valuation, being over 20% cheaper than DBS Equilibrium Exchange Model (DEER) fair value.

Based on DBS Group Research’s DEER Model, the ringgit is the most undervalued among Asia ex-Japan currencies (-20.6%), followed by the Indonesian rupiah (-5.0%), and the Chinese yuan (-4.1%). 

DBS Foreign Exchange and Macro Strategist Chang Wei Liang wrote in a note on Tuesday (Aug 2) that an under-valued ringgit has unsurprisingly bolstered Malaysia’s 12-month trade surplus to a record high of over US$60 billion, which is double of its pre-Covid-19 norms of around US$30 billion. 

“If there is greater political stability, we may see an increase in exchange conversion of export proceeds that could spur a ringgit recovery,” he added. 

Meanwhile, the overvalued currencies are the US dollar at 18.1%, followed by the Thai baht and the Philippine peso at 9.2% respectively, and the Indian rupee (4.6%). 

The DEER model is a proprietary valuation methodology developed by DBS Group Research to calculate the fair value of currencies.

The ringgit weakened by 0.08% against the US dollar to 4.4565 as at time of writing on Wednesday (Aug 3), and slipped 0.03% against the Chinese yuan to 0.6602. But, the local currency rose by 0.11% against the Indonesian rupiah to 0.0003. 

Meanwhile, independent economist Dr Mohd Afzanizam Abdul Rashid, when contacted by theedgemarkets.com on Wednesday said the trajectory for the ringgit has been on a “weakening bias” amid the US Fed interest rate hike, as well as geopolitical risks. 

“In that sense, the exchange rate could be signaling some structural issue with respect to our economy. In the immediate term, the central bank might come in to intervene [in] the foreign exchange market, in order to stabilise the ringgit. 

“But beyond that, the government would need to take heed from such signals (the weakening bias) as the exchange rate does reflect the fundamentals of our economy, as the inflows of funds reflect the extent of market confidence. 

“To some degree, the domestic political landscape could also play a role as it will add [to] the extent of uncertainties, especially in respect to policy making,” he added.