Can the ringgit hit RM3.95 this week?

Analysts believe this may be possible after the currency moved through the RM3.98 level with relative ease

By MARK RAO / Pic By MUHD AMIN NAHARUL

The general election, industrial growth and energy prices are the main factors that could support the ringgit to reach RM3.95 against the US dollar as early as this week, according to analysts.

The local unit continued to test new highs last Friday at the RM3.97 mark, following the increase in industrial production and global energy prices continuing their upward trajectory, cementing market expectations of an interest-rate hike by Bank Negara Malaysia (BNM) this month.

According to the latest government data, Malaysia’s Industrial Production Index grew by 5% year-on- year — above market expectations — on improved showings across all indices, helping the ringgit to appreciate by 11% in a year.

“The local currency made the highlight reel once again after a substantial industrial production number last Thursday, which cemented the markets’ BNM rate hike view.

“While we’re likely to enter a healthy correction on oil prices, the West Texas Intermediate is at such a lofty level and any sell-off is unlikely to have any sustainable adverse effect on the ringgit,” Oanda Corp head of trading for Asia Pacific Stephen Innes said.

He said the currency is poised to perform at the RM3.95 level to the dollar this week, after moving through the key RM3.98 level with relative ease.

With the 14th General Election due to occur this year, the ringgit will find further support as the ruling administration holds up the stronger currency as a sign of economic growth.

“A stronger currency is always a high for the government when heading into an election year, as it is the

brightest signpost that the economy is going strong,” Innes said, adding that a stronger ringgit could negatively affect exports.

However, he said that since the Malaysian currency is still undervalued relative to other regional peers on a trade-weighted basis, it is not seen as a significant immediate near- term effect — given the solid export performance and stronger oil prices.

Meanwhile, a senior trader in the foreign-exchange (forex) market said the ringgit rally is “good news” ahead of the elections as the currency’s weakness was one of the criticisms levelled against the ruling government.

“A strong local currency is a cause for the ruling party to say this is down to its economic policies,” the source who spoke under condition of anonymity told The Malaysian Reserve.

“So, it is likely the central bank and government will align their views to favour a stronger ringgit heading into the elections.”

The forex trader said markets are still looking at a RM3.95 short-term target for the ringgit, which will be contingent on the overall performance of the US dollar.

“The European Central Bank indicated that easy money in the market is over and took the decision to tighten rates — a change from its previous position — and caused the dollar index to come down.

“If the euro-to-US dollar can break the next high, the dollar will come off a lot more as a result,” the source said.

While the US dollar continues to influence the direction of the ringgit, the Malaysian currency performed stronger against its regional peers last Friday.

At 5pm last Friday, the local unit was up by 0.12%, 0.26% and 0.05% against the Singaporean dollar, Thai baht and Indonesian rupee respectively.

Innes said this is reflective of fundamental support for the ringgit compared to its neighbours.

“BNM is likely going to raise interest rates in January, whereas the Bank of Thailand remains a neutral policy and appears unhappy about the pace of the baht’s strength.

“Against the Singapore dollar, the ringgit has the oil and commodity advantage over Singapore as the latter has no natural resources, while I think the market has bought into Indonesian rupee risk and sees better opportunities in the ringgit now,” he said.

He added that the ringgit flow has been broad-based and will likely increase on the break of the RM3.98 mark, as the stronger local currency will appeal to both bond and equity investors.

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