By MARK RAO ( Malaysian Reserve)
The ringgit, supported by the anticipated interest-rate hike next year, continued to gain against the US dollar despite the plunge in oil prices and sell down on equities markets across the region.
The ringgit closed at RM4.1735 against the dollar yesterday, a one-year high for the local unit.
Oanda Corp head of trading for Asia Pacific Stephen Innes said despite the global drop in commodities prices across the board, the ringgit managed to be among the top performers in the Asian foreign-exchange (forex) market yesterday.
“After the US Consumer Price Index (CPI) announcement the ringgit traded to a low of RM4.1800 against the green-back, but ran into substantial buying interest on the back of US dollar profit,” Innes said.
“The ringgit remains in favour of the knock-on effect from last week’s hawkish Monetary Policy Committee (MPC) despite the overnight fall in oil prices,” he added.
On Jan 4 this year, the ringgit was at its weakest at RM4.4975.
Innes said the dollar/ringgit is trading lower with US dollar/yen and US Treasury yields lower.
The strength in the local unit is in spite of the weak equity landscape experienced regionally.
“I find this a bit unusual and we see a breakdown of a lot of fundamentals, namely a weak local stock market and a strong currency.
“In this scenario, I think the ringgit is susceptible to rebounding US interest rates, especially as the local equity market looks unsettled,” he said.
The MPC last week maintained the Overnight Policy Rate at 3%, but stated it may review the current degree of monetary accommodation in Malaysia due to the bullish outlook of the country’s economic growth in 2018.
This was a boost for the ringgit as the hawkish MPC stance signals a stronger economic direction for the country.
The appreciation comes in spite of oil prices falling after recording a 10% upward rally over the past month.
“Given the correlation between oil and the forex market that has been sidelined for most of the year, any proportional currency knock-on effect should be limited,” Innes said.
He added if the current economic growth momentum together with the increasing hawkishness from Bank Negara Malaysia continues, the ringgit will gravitate toward its 2018 year-end target of RM4 against the greenback.
On the dollar front, Innes said appetite is low as investors are predisposed to reduce rather than hold on to risk ahead of the critical US CPI print.
He said this is a “sobering reminder” as to just how fast things can turn in the currency market.
“What started off as little more than an exercise in consolidation could quickly snowball into an all-out blizzard, even more so with the Judge Roy Moore scandal presenting blustery headwinds to tax cuts and the Republican Senate majority.”