by MARK RAO/ pic by TMR FILE
THE ringgit weakened against the US dollar last week after reports noted Washington is exempting over 400 Chinese products from tariffs ahead of high-level trade talks next month.
The Malaysian currency strengthened 0.6% to close the day at RM4.1682 last Friday, in what was a volatile week for the local note.
Reports’ stating the US is temporarily exempting a total of 437 types of Chinese products from trade tariffs bode well for talks ahead between the world’s largest economies expected in October.
The exemptions will follow both nations opting to defer several planned tariffs on US-China trade amid growing signs the protracted trade war is hurting both economies.
“The upside for the ringgit could be triggered by signs of thawing US-China trade tensions, with a formalised trade deal being the potential catalyst for a rally in risk assets,” FXTM market analyst Han Tan told The Malaysian Reserve (TMR).
He said geopolitical risks involving major oil producers could also prove supportive of currencies that are traditionally linked to oil prices such as the ringgit.
“The crystallisation of such risks could constrict oil’s supply to the global markets, potentially driving oil prices higher,” he said.
The key level to watch in terms of assessing oil’s impact on the ringgit is the US$70 (RM291.90) per barrel mark for Brent, as that level forms the basis for Malaysia’s fiscal spending plans for 2019, he added.
Attacks on major oil sites in Saudi Arabia recently disrupted some 5.7 million barrels of daily crude oil production, representing over 5% of the global daily oil output and caused Brent oil to spike 19.5% last Monday.
The contract quickly pared back most of its gains after Saudi Arabia said it restored 50% of its disrupted supply while full production is expected back as soon as the end of this month.
A stronger US dollar direction and prospects of the US Federal Reserve (Fed) putting a pause on further rate cuts, after having already lowered lending rates twice this year, saw the ringgit under selling pressure for the majority of last week.
“Given the market catalysts at play, a break above RM4.20 for the US dollar ringgit exchange could be resisted at the RM4.23 level over the near term,” Han said.
The support level for the currency pair can be drawn at RM4.16, a level where the 50and 100-day moving averages are beginning to converge, he said.
In a separate research note, he said key economic data to be released by the US and China, as well as Malaysia’s consumer price index for August, will be among the key factors to look out for this week.
AxiTrader Asia Pacific market strategist Stephen Innes said geopolitical risk in the Middle East comes with both negatives and positives for Malaysia.
“The geopolitical risk is bad for risk markets, but the prospect of higher oil prices is great for Malaysia regardless of the risk premium,” he told TMR.
“If the US and Saudi Arabia decide on sanctions (on Iran), which they will, oil prices could fall further.”
To recap, the ringgit has had a volatile year thus far, appreciating 1.7% against the greenback to RM4.0610 on March 21, supported by a dovish Fed, before falling 3.3% to RM4.1940 on May 29.
The depreciation was largely driven by external factors such as the escalation in US-China trade tensions and prospects of FTSE Russell dropping Malaysia from its World Government Bond Index.
Malaysia’s local note hit a 22-month high of RM4.2203 on Sept 3 this year.
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