Ringgit soars on 1st trading day of 2020

The local note closed at 4.087 against the greenback yesterday, the highest since April last year

by SHAZNI ONG / pic by MUHD AMIN NAHARUL

THE ringgit closed at a nine-month high on the first day of trading this year, as positive sentiment from external factors drove investors into the country’s capital market and thus boosting the local unit.

The local note closed at 4.087 against the greenback yesterday, the highest since April last year. This was bolstered by favourable developments in the US-China trade war, said Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.

US President Donald Trump on Dec 31 indicated the “Phase 1” deal would be signed on Jan 15, with discussions with Beijing on the second phase to follow “at a later date”.

Apart from that, the latest official Purchasing Managers’ Index in China, — which has remained above the 50-point demarcation line — as well as the recent cut in the required reserve ratio by 50 basis points as announced by the People’s Bank of China (PBoC), suggest that China’s economy could stabilise in the near future.

“Some form of optimism appears to be gradually improving against such a backdrop. This has led to depreciation in the US dollar as risk-on has become prevalent. This could lead to the appreciation of the ringgit as a result,” Mohd Afzanizam told The Malaysian Reserve.

On whether the trend can be sustained depends largely on the outcome of trade talks between Washington and Beijing.

“Thus far, the current US foreign policy towards China seems to suggest challenging prospects as to whether both countries can achieve an amicable solution in the immediate term. As such, we remain guarded,” Mohd Afzanizam added.

Optimism that a trade deal will be signed soon continues to resonate with ringgit traders, alongside economic data bottoming in China’s economy, AxiTrader AsiaPacific market strategist Stephen Innes said.

“An added plus is the PBoC’s stimulatory efforts which are likely to boost growth. Given Malaysia’s close trade ties with China, this should play out favourably for the ringgit.

“Still, the ringgit remains very much connected at the hip to the yuan, so we could expect another favourable move on the run-up to the trade deal, eventually getting signed on Jan 15,” he wrote in a note yesterday.

Innes added that investors are starting to see equity inflows and growth-sensitive currencies catching up to the relatively more optimistic global equity markets, based on more positive views for the worldwide economy.

“Keeping in mind, we are lifting off from meagre expectations. Since the ringgit is arguably undervalued relative to the basket, we should expect the ringgit to continue playing catch up to its regional peers,” he said.

The benchmark FTSE Bursa Malaysia KLCI closed 13.74 points or 0.86% higher at 1,602.50 yesterday in its biggest move since rising 0.87% on Dec 20, while the MSCI AC Asia Pacific Index was near flat.

Public Bank Bhd was the biggest contributor to the index gain, rising 2.37%, while Hartalega Holdings Bhd dragged the gauge with a 2.37% drop.