Forex traders eye OPR hike as ringgit hits fresh high

The ringgit closed at a fresh 20-month high of RM3.936 last Friday

By MARK RAO / Graphic By TMR

The ringgit could be headed for a bout of volatility ahead of the Monetary Policy Committee (MPC) meeting this week that could end with a revision in the Overnight Policy Rate (OPR).

Oanda Corp head of trading for Asia Pacific Stephen Innes said the currency market has priced in a 70% probability of Bank Negara Malaysia (BNM) raising the OPR after the MPC meeting on Jan 24-25 this week.

“This suggests we could see an uptick in volatility early this week ahead of the MPC meeting, which will be a significant influence over the near-term direction of the Malaysian currency,” Innes said.

The anticipated hike in the OPR has been the key factor driving the rally in the ringgit, with traders eagerly awaiting the decision over the past three months.

The ringgit closed at a fresh 20-month high of RM3.936 last Friday.

Over the past year, the local unit has rallied by 11% against the US dollar on a stronger domestic economy, a weaker dollar narrative and rising energy prices.

The interest-rate decision this week is expected to help steer the ringgit into the next key level of RM3.75 against the greenback.

“With no protestation from BNM governor Tan Sri Muhammad Ibrahim regarding the strengthening ringgit, the lack of comments has all but greenlighted a stronger ringgit and, by extension, increasing the odds of a rate hike this week,” Innes said.

He added the ringgit could reach the RM3.90 mark before the conclusion of the MPC meeting this week, while the highly unlikely scenario of the OPR being maintained at the current level will send the currency back to the RM4.05 and RM4.10 range quite quickly.

ForexTime Ltd research analyst Lukman Otunuga said the path of the ringgit this week will also be driven by the performance of the US dollar.

“In the period leading up to the central bank decision, further gains may be witnessed if the US dollar continues to depreciate,” Otunuga noted in an email.

“Technical traders will continue to observe how the ringgit-US dollar exchange behaves below the RM4 psychological level and the RM3.85 support region ahead of the interest-rate decision.”

At the last MPC meeting held in November 2017, BNM maintained the OPR at 3%, a rate level held since July 2016, when the interest rate were last cut by 25 basis points from 3.25%.

The last cut was the first reduction in seven years and was geared at protecting the Malaysian economy from global headwinds, including the Brexit vote.