Ringgit gains as US-China trade deal nears

The ringgit is starting to catch up as the Chinese yuan veers on a bullish tack ahead of the Phase 1 deal signing


THE ringgit exchange rate closed at a 10-month high at 4.06 against the US dollar yesterday as traders saw the undervalued currency gaining in the run-up to the trade deal between China and the US this week.

Analysts said the undervalued local unit relative to regional peers is starting to catch up as the Chinese yuan veers on a bullish tack ahead of the Phase 1 deal signing.

“Ringgit traders are in a riskier mood as the yuan, Asia’s key bellwether is trading on an even keel, which bodes well for Asean currencies in general to start 2020. Asia exporter currencies and, in particular, high yielders have been in massive demand. Inflows have notably increased, and the ringgit has also reaped the rewards,” AxiTrader Ltd chief Asia market strategist Stephen Innes said.

FXTM market analyst Han Tan, in a weekly note, stated the ringgit could revisit the 4.05 psychological technical level if the dollar wanes further and risk appetite holds up.

He warned the ringgit could revisit the 4.10 psychological level against the US dollar should a risk-off event catch markets by surprise, with stronger resistance seen at 4.12.

“The Malaysian economic calendar is light on tier-1 releases in the week ahead, hence the primary focus will be on external factors which could affect the ringgit’s near-term performance,” he said.

The Phase 1 trade deal between the US and China will likely have limited impact on Asian markets including Malaysia as the agreement has been extensively telegraphed, Innes said.

The benchmark FTSE Bursa Malaysia KLCI declined by 0.42% or 6.73 points to close at 1,584.73 yesterday, while Asian shares ended mixed despite touching 19-month highs earlier in the day.

Singapore’s Straits Times Index closed 5.31 points or 0.16% lower at 3,250.64, while the Shanghai Composite Index jumped 23.28 points, or 0.75%, to 3,115.57. Hong Kong’s Hang Seng Index ended up 1.11% at 28,954.94.

Innes stated its unlikely that there will be an exceptional level of excitement in the market as the trade deal has been extensively covered and priced in although US President Trump will likely herald the deal in with much fanfare.

“Provided the deal inks a commitment from China to increase agricultural products and outlines a dependable enforcement mechanism, the market will go merrily along the way,” Innes said in a note.

The US-China Phase 1 agreement, due to be signed in Washington tomorrow, marks the first step toward ending a destructive trade dispute between the world’s two largest economies.

The deal is expected to involve some tariff relief and increase Chinese purchases of US agricultural goods, but details of the 86-page deal remain undisclosed to the public.

Many remain doubtful of the comprehensiveness of the deal and wonder if it will be implemented in full by both governments.