KUALA LUMPUR: The ringgit remains under pressure, hitting a 10-year low of 3.7887 against the US dollar — the lowest since July 2005 — during yesterday’s trading, before the local currency closed at 3.7843 against the greenback.

Wong Chee Seng, AmBank Group foreign exchange strategist, commented that the looming Greek debt default and the stronger US dollar have triggered selling pressure on the ringgit.

“Adding to the intensification of ringgit selling were the rising political noises ... from sensational 1MDB (1Malaysia Development Bhd) and other related government-linked companies, which led to persistent calls for a change in leadership,” Wong said.

“The ringgit’s vulnerability gets more intense given the twin prospects of a secular US dollar strengthening and higher US interest rates later this year,” he said.

However, Wong observed, in the past the ringgit appreciated when the El-Nino weather effect hit local shores. He said the rising possibility of El-Nino, typically from five to 18 months with different stages of intensity, could be a supportive driver for the ringgit.

“During this period, we note that the ringgit has an appreciation tendency against the US dollar.

“On average, the currency appreciates by 5.3% and the appreciation pressure could last for 10 months. The currency appreciated most by 10.6% when El-Nino struck from July 2009 to April 2010 followed by a 9.5% gain in May 1991 to June 1992,” he said.

Wong noted that excessive credit risk premium is being applied to Malaysia, even higher than countries like Thailand with a relatively lower sovereign rating.

“Malaysia’s five-year credit default swap stands above 130 basis points compared with Thailand’s equivalent of about 100 basis points.

“Malaysia sovereign is rated at A- against Thailand’s BBB+, suggesting there is quite a strong possibility of currency alignment ahead once issues of government-linked companies are being rightfully addressed,” he said.

This article first appeared in The Edge Financial Daily, on June 30, 2015.