Highlight Ringgit makes biggest leap since 1998

by **Cals** Fri 09 Oct 2015, 00:05

Highlight
Ringgit makes biggest leap since 1998
By Ahmad Naqib Idris / The Edge Financial Daily | October 8, 2015 : 8:53 AM MYT

KUALA LUMPUR: The ringgit strengthened against the US dollar yesterday, making its biggest leap since 1998, touching a low of 4.1745, following a rebound in crude oil prices and better-than-expected trade numbers.
According to Bloomberg data, the ringgit rose nearly 4% to 4.1745 against the US dollar from the opening of 4.3440, and closed at 4.2175. This is in comparison to levels of around 4.40 seen last week. Meanwhile, West Texas Intermediate (WTI) crude oil gained 1.79% to US$49.40 per barrel, while Brent crude gained 1.68% to US$52.79 per barrel.
Etiqa Insurance & Takaful head of research Chris Eng said the ringgit’s rebound was due to a combination of factors. “I can’t pinpoint any single factor that is pushing the ringgit, but there are supporting factors like the rebound in crude oil prices, the higher trade surplus numbers, and the expected entry of ValueCap [Sdn Bhd] into the local market in November.”
To recap, the government announced an injection of RM20 billion into the local stock market, through ValueCap, which will be invested in undervalued stocks. Also earlier yesterday, trade figures showed exports growing at a faster pace of 4.1% year-on-year in August, compared with a revised 3.4% in July.
However, imports shrank 6.1% after expanding 5.9% in July. Consequently, trade surplus widened to RM10.2 billion in August — the biggest in nine months — from RM2.4 billion in July.
Eng said investors could also be positioning themselves for a possible rally by year end, after selling down their holdings, as the fourth quarter of 2015 commences.
Inter-Pacific Securities head of research Pong Teng Siew said this could be the main factor behind the strengthening of the ringgit.“Previously, people were speculating on the direction of the ringgit, which was followed by a selldown, in favour of US dollars. A part of this may be due to hedging requirements,” he said.
Pong said although there was a selldown, he noted that there was no capital flight, as the converted dollars were still kept in Malaysia. “The strengthening of the ringgit today (yesterday) could be due to the reversal of the previous selling trend.”
However, the ringgit’s recovery might be short-lived, as there is still strong demand for the US dollar.
He explained that while the ringgit will somewhat recover, it will not be at the previous levels of around 3.20.
“The pullback to 4.29 currently from a high of 4.4085 on Monday is more impulsive than expected. With no signs of stabilisation just yet, we think the current weakness could continue to extend lower, but with short-term conditions approaching oversold, further downside may be at a slower pace,” said UOB Global Economics and Market Research, adding that it sees the next support level for the ringgit at closer to 4.25 followed by 4.20.
Pong sees the ringgit settling around 4.00, adding that there will still be volatility in the currency due to the various factors affecting it. “For example, the increase in crude oil prices today (yesterday) was supported by tensions in the Middle East. Once the tensions subside, oil prices may contract again, pulling along the ringgit with it,” he said.
On the other hand, Eng said the ringgit may see a slight correction today, following its big gain yesterday. “The ringgit may weaken slightly tomorrow (today), which is normal, considering the big gain today (yesterday). There will probably be some weakening when the ringgit touches its support level of around 4.18 and 4.19,” he said.
Meanwhile, on Bank Negara Malaysia’s (BNM) international reserves, Eng said the numbers were slightly disappointing. In a statement yesterday, the central bank said its international reserves were lower at US$93.3 billion (RM415.1 billion) as at Sept 30, compared with US$95.3 billion as at Sept 15. BNM attributed the fall to quarterly adjustment for foreign exchange revaluation changes, and said the reserves position is sufficient to finance 8.6 months of retained imports and is 1.2 times the short-term external debt.
“The reserve numbers were slightly disappointing, compared with US$97.5 billion from mid-Sept. However, the central bank said its reserves were sufficient to finance 8.6 months of retained imports and 1.2 times the short-term external debt, which is an improvement from the previous 7.6 months and 1.1 times respectively,” he said.
Note that despite ringgit’s gain yesterday, the currency is still down 20.59% year to date.