Brexit and virus dawn on ringgit


THE ringgit is expected to weather more volatility stemming from the UK’s divorce from European Union and deadly coronavirus outbreak that has rattled global financial markets for the past three weeks.

Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said the ringgit, along with other Asian currencies, is severely affected after falls in the offshore and onshore yuan.

China’s capital market, which re-opened yesterday after an extended Chinese New Year break, down 0.9% before recovering slightly to post 7.5% after 30 minus of trading.

“Commodities exchanges opened in China with important benchmarks in oil, rubber, iron ore and copper, among a slew of others, immediately falling limit down by 5%. Both Chinese and regional Asian markets are unlikely to be back in black anytime soon,” he said.

The outbreak prompted China’s central bank, People’s Bank of China (PBoC), to inject a stimulus package worth US$174 billion (RM713.4 billion) and fix the yuan at a much stronger rate.

While the world’s second-biggest economy yet to mature the effect of the stimulus package, China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) for January fell to 51.1 and is further expected to drag down the currency market.

“Asian stock markets have already followed China into the red following that bastion of peak optimism, Wall Street, capitulating last Friday. The self perpetuating negative feedback curve on global growth that I have mentioned previously is in full swing,” said Halley.

Concerns about the effect of China’s growth and virus outbreak have spilt over in regional Asian markets, which are closely aligned with the economic health of China.

The rest of Asia presented a mixed bag with the IHS Markit Manufacturing PMI in Taiwan and Philippines printing slightly higher, but notably, Indonesia’s and Japan’s PMI slumped.

Malaysia registered the sharpest rate of deterioration with the headline figure 48.8 — the lowest since September 2019. It further aggravates pressure on the performance of the ringgit, said Halley.

On the global front, the UK’s departure from Europe also inflamed the ringgit. The weakness is set to continue as investors rotate out of developing markets and into developed market haven positioning.

“The US dollar has strengthened against the ringgit, rising through 4.1000 to 4.1110, a 0.4% drop on the day. The ringgit is weakening and could test 4.1200 and then 4.1400 if weakness in the Chinese market persists,” said Halley.

Overall, equity, energy and commodity markets will remain under intense pressure as the economic threat of the Wuhan virus ferments fear in the currency market.

On the global front, the UK’s departure from Europe has also weakened the local unit against pound and euro.

“Pound/ringgit and euro/ringgit have fallen because the dollar has weakened, not because of strength in the euro and pound per se. We would expect the US dollar to remain on the back foot until the US Treasury yields stabilise,” said Halley.