Ringgit gains held back by returning risk aversion

By MARK RAO / Pic By BLOOMBERG

The rally in the ringgit was kept in check yesterday as risk aversion crept back into markets on geopolitical concerns and weaker trade data coming out of China.

FXTM research analyst Lukman Otunuga said emerging-market (EM) currencies entered the trading week on a cautious note as geopolitical risks and fears over slowing global growth left investors uneasy.

“The performance across the EM currency space was mixed with the Chinese yuan, the ringgit and Indonesian rupiah depreciating (against the US dollar),” he said in a research note.

In contrast, the Mexican peso, South African rand and Turkish lira stood tall against the greenback, he added.

Brexit-related uncertainties and political uncertainty in Washington are among factors draining investor confidence leaving EM currencies vulnerable to losses, he noted.

The ringgit traded between RM4.09 and RM4.10 yesterday against the US dollar.

A slowdown in the Chinese economy remains the biggest downside risk for the ringgit due to its implications on global trade and Malaysia’s trade exposure to China.

Oanda Corp head of trading for Asia Pacific Stephen Innes said financial markets were anticipating leading regional trade indicators to be weak heading into China’s trade data release on Monday.

“This proved to be the case with the weaker than expected trade figures weighing on commodity and equity markets and associated currency baskets,” he said in a research note.

Crude oil is trading weaker this week at US$59 (RM241.90) per barrel on the Brent index compared to the US$60 per barrel levels that closed out last week, adding pressure to the commodity-linked currencies like the ringgit.

“Oil prices are getting weighed down by the prospects of weaker economic growth in China amid a definite global growth slowdown, but remain supported by OPEC production cuts and hopes of the US-China trade detente,” Innes said.

He added that China’s December trade figures are hammering commodity markets lower as this data drives home just how negative of an impact the trade war is having on the Chinese and global economies.

Innes expects the ringgit will continue to find support as the US Federal Reserve (Fed) has reassured markets it will be flexible and accommodative to market conditions globally.

“A political impasse in Washington and expectations the Fed taking a pause on rate hikes continue to weigh heavily on the US dollar,” Otunuga said.

He added that the greenback is at risk of falling further if disappointing US economic data threaten its safe-haven status.

Technically, the next key support level for the ringgit/dollar rate is at RM4.075, while a positive outcome from ongoing US-China trade talks could lift the currency into the RM4.05 zone.