Ringgit falls on Trump comments, HK unrest

Trump’s comments cast doubt over the actual progress of the US-China trade talks, thus sending the US dollar higher, says analyst


THE ringgit and local stock market were dragged down by returning trade uncertainties after the US President Donald Trump threatened further tariffs on China if no deal is reached, while the continued unrest in Hong Kong takes a toll on the regional markets.

After appreciating to an over three-month high against the greenback last Thursday, the local note depreciated 0.7% against the US dollar to close at 4.1540 yesterday.

This followed Trump’s warning that Washington will increase tariffs already imposed on billions of dollars’ worth of Chinese goods if the first step of a broader trade deal is not reached.

Oanda Corp senior market analyst for Asia Pacific Jeffrey Halley said Trump’s comments cast doubt over the actual progress of the US-China trade talks and the prospects of an interim trade deal being struck soon, thus sending the US dollar higher.

“We have seen a similar reaction with equities and commodities during (yesterday’s) session in Asia. The price action looks corrective in nature rather than a wholesale rush for the exit door,” he told The Malaysian Reserve (TMR).

“The pullback is likely as much due to extended long positioning on the global recovery trade than one-night headlines.”

He added that the escalation in violence and protests in Hong Kong is worrying regional investors who could be looking to reduce their exposure to these markets.

Malaysia’s benchmark FTSE Bursa Malaysia KLCI shed 12.51 points or 0.8% to close at 1,597.22 yesterday in line with the losses noted across Asian markets but due to weak third-quarter performance of top-listed corporates.

Petronas Chemicals Group Bhd, which reported a 54% year-on-year fall in net profit for its latest quarter, led the decline with its shares falling 5.4% or 42 sen yesterday.

AxiTrader Asia-Pacific market strategist Stephen Innes said while trade uncertainty is weighing on both currencies and equity markets, the rise of populism in Hong Kong is further sending negative reverberations across Asian markets.

“We have to remember that Hong Kong is a great entry point for a lot of the region’s exports that make their way into China,” he told TMR.

The ringgit’s performance was initially bolstered by news that Washington and Beijing have agreed to a phased removal of trade tariffs and the decision by Bank Negara Malaysia (BNM) to keep its Overnight Policy Rate (OPR) steady earlier this month.

Improving risk appetite and the favourable US-Malaysia interest rate differential, which makes Malaysian assets more attractive, allowed the Malaysian currency to close at 4.1240 against the dollar last week — its lowest since July 26 this year.

There is also uncertainty whether Washington plans to remove existing trade tariffs as part of an initial trade deal with China or if it only plans to cancel tariffs initially scheduled to come into effect next month.

“At a minimum, if the December tariffs don’t get taken off the table, risk will be in a world of hurt,” Innes said, adding Trump is unlikely to favour a trade war heading into an election year next year.

“But again this is a guess and really that’s all any of us have at this stage. A guess is not the ideal environment for risk markets,” he said.