Highlight Ringgit hits three-year low

Highlight Ringgit hits three-year low
Business & Markets 2013
Written by Cynthia Blemin & Zatil Husna Wan Fauzi of theedgemalaysia.com
Thursday, 15 August 2013 08:41

KUALA LUMPUR: The ringgit hit a fresh three-year low yesterday and continued to weaken against the dollar to 3.2735 at its close yesterday from 3.2590 the previous day.

After hitting a year-to-date high of 2.9625 on May 8, the ringgit has so far depreciated 10.5% as at 7pm yesterday.

This is the weakest level since July 1, 2010.

The ringgit came under pressure due to concerns of the currency being most vulnerable to the US Federal Reserve tapering its quantitative easing programme, considering the high level of foreign investments in government bonds and the decline in the value of exports due to lower commodity prices.

RHB Research Institute regional head of fixed income, Ray Choy, when contacted said the continuous foreign selling in Malaysian government securities (MGS) is also one of the reasons for the fall of the ringgit.

Another contributing factor was Fitch Ratings' move to cut Malaysia's credit outlook from "stable" to "negative", citing concerns over the government ability to rein in public spending.

However some quarters feel that the ringgit is in an oversold position.

"People believe the ringgit is being oversold," Wong Chee Seng, a currency strategist with Ambank Group told TheEdge Financial Daily when contacted.

He added that the ringgit compared to other regional currencies is seen as the weakest link.

This was due to the stronger build up in the G3 macro momentum, the strong US dollar coupled with concern over Fitch's outlook downgrade, he explained.

G3 refers to the economies of the US, European Union and Japan.

According to recent reports, the greenback rose after a stronger than expected 0.5% rise in core retail sales in the US, the biggest growth since December 2012.

Wong pointed out that the high foreign ownership of MGS and risk of weaker exports have also caused the ringgit to be in oversold position.

Foreigners held nearly 50% of outstanding government bonds as of May, according to central bank data.

However, Wong noted that the ringgit is expected to rebound in the final quarter of the year due to returns in investment cycles and the uptrend of commodity prices, including that of crude oil.

According to Bloomberg, the ringgit dropped to a three-year low ahead of data that may signal the US recovery is gaining traction, bolstering the case for policymakers to pare stimulus that has fuelled inflows to emerging market assets.

Reports this week may show that retail sales, manufacturing and housing starts increased last month in the world's largest economy, according to Bloomberg surveys.


This article first appeared in The Edge Financial Daily, on August 15, 2013.