Ringgit volatility rises before U.S. CPI report

Ringgit volatility rises before U.S. CPI report
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KUALA LUMPUR (Aug 8): A gauge of anticipated ringgit volatility rises for a second day before a U.S. inflation report on Friday that may provide guidance about when the Fed will resume raising interest rates.

* 1-month implied volatility for USD/MYR climbs 1bp to 5.72%

* USD/MYR little changed at 4.2847 after rising 0.2% Monday

** Support 4.2760, 4.2663, 4.2505; resistance 4.3022, 4.3055, 4.3217

* Ringgit may come under pressure as a meeting between oil producers to address oversupply is likely to disappoint, says Sean Yokota, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore

** Traders have reduced short USD positions after last week’s NFP report and this may continue if there’s a strong print in U.S. inflation data this Friday

** Still, emerging markets remain attractive in the face of rising interest rates in the developed world as growth is holding up and inflation remains contained

* Ringgit is among EM FX that Morgan Stanley favors, according to a report released Monday

** Co. suggests using EUR to fund purchases of EM currencies as EM remains fundamentally in good shape and valuations look cheap against EUR

* Malaysia’s 10-year govt bond yield little changed at 4%

* Foreign ownership of Malaysian sovereign and corporate debt securities fell 1.2% to 192b ringgit in July from previous month: central bank data showed late Monday

* Although there’ll be sizable bond redemptions from Aug. to Oct., there are unlikely to be significant maturity-driven outflows as foreign ownership of Islamic securities is low and holdings of other notes have been reduced, Winson Phoon, a fixed-income analyst at Maybank Investment Bank, wrote in note Monday

** 2H will be challenging as external risks such as a change in market pricing on the pace of further Fed hikes may shift broad EM flow sentiment

* Global funds bought net 151.2m ringgit of Malaysian stocks last week, a 4th week of purchases: MIDF Amanah Investment