Ringgit to find support in domestic economy over mixed performance

Other economic indicators provided by the central bank last week are also perceived as supportive for further ringgit appreciation


The ringgit saw a mixed performance following the announcement of Malaysia’s GDP numbers last week as conflicting signals kept the local note trading at a high volatility.

Dovish signals from the US Federal Reserve (Fed) provided significant gains for the ringgit in 2019 with the currency 1.42% stronger against the greenback year-to-date (YTD).

Malaysia’s GDP also came in within or above most market expectations at 4.7% for the fourth quarter of 2018 (4Q18) and 4.7% for the full year, underlying strong domestic support for the local note to appreciate further this year.

However, expectations of Washington and Beijing reaching a trade truce by the March 1 deadline has renewed US dollar buying interest in the market. This caused the greenback to strengthen against most emerging-market currencies, while global growth fear is keeping the bulk of traders risk-cautious at the moment.

FXTM global head of currency strategy and market research Jameel Ahmad said Malaysia’s GDP growth underscores the resilience of the country’s economic fundamentals and provides support for the ringgit going forward.

“Malaysia’s fundamentals are expected to mitigate the downside external risks on its currency, including US-China trade tensions, slowing global growth and the Fed’s monetary policy outlook.

“Following the (GDP) announcement, the ringgit pared earlier intraday gains to fall in line with most major Asian currencies which have weakened against the US dollar,” he told The Malaysian Reserve (TMR).

Other economic indicators provided by Bank Negara Malaysia (BNM) last week are also perceived as supportive for further ringgit appreciation this year.

According to the central bank, foreign direct investment (FDI) in Malaysia had improved to RM12.9 billion in 4Q18, while its current-account surplus widened to RM10.8 billion.

“YTD foreign fund flows into the domestic equity markets and Malaysia’s current account surplus are also seen to be supportive of the ringgit, even with the wider fiscal deficit expected for 2019.

“However, the ringgit’s performance remains exposed to major external risks that can significantly shape global sentiment.

“Should the external picture show signs of deterioration, that may put downward pressure on the Malaysian currency moving forward,” Jameel said.

He said the resistance level for the US dollar-to-ringgit exchange is seen at RM4.0872 — its 200-day moving average — while a sustained breach below RM4.0675 may open a path towards the psychological RM4.05 level.

Meanwhile, Fitch Solutions Inc risk analyst for Asia Darren Tay said Malaysia’s 2018 GDP growth still represents a sharp slowdown from the 5.6% achieved in 2017, despite coming above expectations.

He added that the country’s GDP growth is expected to fall further in 2019 to 4.2% due to trade tensions, reduced government expenditure and a deteriorating investment environment.

“All else being equal, the narrowing growth differential Malaysia has over the US will also be negative for the ringgit.

“However, the ringgit has been on an appreciatory trend and we attribute this to an allocation of assets away from developed European economies which have souring growth outlooks compared to Asia,” he told TMR.

He said Asia remains the fastest-growing region in the world despite anticipations of slowing growth this year.