Ringgit shows resilience amid oil price slide, OPEC cuts

by Anna Chidambar

Buying interest in the ringgit remained surprisingly constructive despite crude prices dropping more than 5% to US$48.90 (RM210.27) last week due to market disappointment at the outcome of the OPEC production policy.

“The ringgit’s resilience is encouraging for local currency investors,” Oanda Corp Singapore senior trader Stephen Innes told The Malaysian Reserve in an email response.

From a flow perspective, the common view was that the worst is behind the local currency and inflows were expected to accelerate, as the local capital market played catch up with regional peers.

“From a position perspective, the ringgit markets are very much underweight and with positioning much cleaner, we could see a move lower in the ringgit versus the US dollar, provided there are no surprises from the US Federal Reserve board and global risk sentiment continues to recover,” he added.

At this stage, Innes favoured underweighted Asian emerging-market (EM) currencies like the ringgit, as opposed to the very crowded South Korean won and the Taiwan dollar.

“I’m still looking for a test of 4.2600 for the ringgit versus the US dollar, despite the collapse in oil prices last week,” he added.

OPEC and other major exporters extended their current deal to limit oil production for nine months in the Vienna meeting, disappointing investors who were anticipating deeper cuts.

Innes noted the market had been hoping that oil producers could reach a last-minute deal to deepen the cuts or extend them further, until mid-2018.

Last Thursday, OPEC and non-OPEC countries agreed to extend cuts by the same 1.8 million barrels per day (bpd).

In response, Minister in the Prime Minister’s Department Datuk Seri Abdul Rahman Dahlan noted in a statement last Thursday that Malaysia is committed along with non-OPEC countries to follow the decision.

“On behalf of Malaysia and after discussing with Petroliam Nasional Bhd, I pledged a production cut of 20,000bpd, which was agreed by other members, similar to the level committed before,” he said.

The local note closed at 4.2770/280 last Thursday.

OPEC and non-members led by Russia, decided last Thursday to extend cuts in oil output by nine months to March 2018 as they battle a global glut of crude after seeing prices halved and revenues drop sharply in the past three years.

OPEC’s cuts had helped to push oil back above US$50 a barrel this year, giving a fiscal boost to producers, a majority of who rely heavily on energy revenues, and have had to burn through foreign-currency reserves to plug holes in their budgets.

Innes said the sudden drop in oil prices would eventually stabilise as global inventories shrink, as well as declining Saudi exports to the US.

Last December, OPEC agreed to its first production curb in a decade and the first joint cuts with 11 non-OPEC producer nations in 15 years.

The two sides decided to remove about 1.8 million bpd from the market in the first-half of 2017, equal to 2% of global production, taking October 2016 as the baseline month for reductions.

The latest deal would see OPEC and other major producers, including Russia, rolling over their six-month deal to remove 1.8 million bpd from the market through March 2018.

Innes said, while speculators punished the West Texas Intermediate contract by driving it lower, in US equities shrugged off the oil spill on strong retailer earnings.

The ringgit closed the week at 4.27041 against the US dollar last Friday.