Ringgit volatility rises as trade war worsens

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KUALA LUMPUR (July 13): Ringgit’s implied volatility rises this week by the most in 2 months despite limited moves in the spot, as U.S.-China trade tensions remain elevated and the dollar retains its strength.

* USD/MYR 1-month implied volatility climbs 0.16 vol Friday to 5.70; it has gained 0.21 vol this week

* Spot USD/MYR is little changed on the week to trade at 4.0385

** Support 3.9975, 3.9892, 3.9825; resistance 4.0515, 4.0660, 4.0920

* Pair may meet slight resistance at 4.05 before approaching 4.10, with trade war and CNY selloff the main risks for ringgit, says Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore

** Volatile energy prices also compound ringgit’s swings, depending on which side of $75 Brent gravitates toward 

* MYR may drop to 4.05 per USD at end-3Q as U.S. tariffs on Chinese goods damp sentiment: MUFG Bank 

* 10-year yield rose 3bps to 4.13% Thursday

* Auction of RM4b of 10-year Islamic govt bonds closes at 11:30am local time

* BNM will revamp its organizational structure, with changes to include oversight of a department that investigates financial mismanagement and money laundering: The Star

* Govt to proceed with Light Rail Transit 3 project at a final cost of RM16.63b, a reduction of 47% from previous estimate: Finance Minister Lim Guan Eng

** NOTE: Govt is reviewing large infrastructure projects to reduce its debt burden

* Home Minister Muhyiddin Mohd Yassin is on 1-mo. medical leave after undergoing pancreatic surgery and PM Mahathir will assume his duties