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1MDB rears its ugly head
The 1MDB scandal rears its ugly head again and could dent sentiment in local Bond markets over the short term after 1MDB failed to make good on debt payments to Abu Dhabi sovereign wealth fund as part of a debt settlement dispute.
And while the regional geopolitical knock on from North Korea appears well contained further escalation will likely create unwanted local volatility and could spur capital outflows
But the USD MYR despite Political and Geopolitical spillovers could continue to push lower amidst broad USD weakness and stability of renminbi over the medium term. But over the short term, 1MDB headline consternation and the lack of overt USD selling suggest the USDMYR trades with a bid tone today, however, the pair is unlikely to press the 4.29 level. So far there has been little panic in the markets since Tuesday’s headline (1MDB) as there are still active buyers of Malay bonds
None the less, the local market is a bit jittery now but with global equity market trading at records highs and US treasury yields softening overnight, investor anxiety could be short lived.
However I think the MYR and other regional currency appeal is very much a USD storyline and provided the USD remains weak on a dovish Fed outlook, the MYR should stay in favour. However, a return of US fiscal policy to the headlines or a more aggressive Fed balance sheet initiative will present some serious headwinds to this view.