KUALA LUMPUR: Unexpected election outcome and smoother government transition have fuelled investors’ sentiment towards the ringgit.
FXTM global head of currency strategy & market research, Jameel Ahmad said the major factor behind emerging market currencies coming under selling pressure throughout the past month was attributed to the strengthening of US dollar.
“One factor that could influence the local currency’s direction is how investors behave towards the US dollar. The greenback advanced to 2018 highs over the last week, but if there is a pause in the buying sentiment towards the US dollar it should help provide the ringgit with the opportunity to strengthen towards its fundamentals,” he told NSTP Business recently.
Jameel said the election surprise has been significant news, citing that any lingering factors that are yet to be clarified will be viewed as a domestic issue for Malaysia.
“It should not have a lasting impact against the ringgit,” he said, adding that all emerging market currencies remain very sensitive to external factors like the US dollar trajectory.
“All global currencies have weakened against the US dollar over the past month; it isn’t that the ringgit is the only currency to have weakened.
“I do think that the US administration will soon speak about the recent dollar appreciation, because it is not something that President Trump wants to see,” he said.
Jameel said when there is a round of profit taking on the US dollar; it will help improve investor sentiment towards the ringgit.
Inter-Pacific Research head of research Pong Teng Siew said it might be difficult to keep the ringgit firm and strong against other currencies, but it was important to keep the local note stable and not to weaken rapidly over a period of time.
“The process of outflow from emerging markets seems to be gathering pace. We have to perhaps adopt measures that will improve confident from investors.
“The hike in US interest rate will require Malaysia to adapt to the right policy which would cushion the impact of stronger US rate on the exchange value of the ringgit,” he added.
OANDA head of trading Asia Pacific, Stephen Innes said the political risk premium has tentatively evaporated after the markets opened and traded reasonably well yesterday on affirmative council appointments made on the weekend.
He said the Bank Negara Malaysia’s (BNM) backstop after it reaffirmed to continue to ensure clean conditions prevail in onshore financial markets.
“But investors are indeed not crashing the gates to increase economic ringgit risk. Instead, it was the placid open which caused bearish ringgit bets along with pre-election hedges to unwind,” he said.
Innes pointed out the positive ringgit sentiment came on the back of the local supply where Malaysian dealers were comfortable selling dollars using the BNM as a stop-loss order.
“Even more telling were the local pension funds which were on the bid (bond and equity markets) all day providing strong support levels.
“Given the anticipated bumpy ride over the next few weeks, for some, there was not enough of a fire sale to comfortably re-engage the ringgit, and it remains highly unlikely investors will chase the ringgit higher until the all the government's cards are on the table,” he said.
Rakuten Trade head of research Kenny Yee said the prevailing feel good factors should be sufficient drivers for the ringgit and will be surprised if Malaysians began to place their foreign denominated money back into the country which will in turn be ringgit positive.
“Strong catalysts for the ringgit at the moment would certainly be the higher crude oil prices and also the Chinese Renminbi which the ringgit has the closest correlation,” he said.