Ringgit will be under pressure by low oil prices, volatile global market

Last Friday, the ringgit lost further grounds against the greenback, closing at 4.2775 after dropping to a low of 4.2957

by SHAHEERA AZNAM SHAH / pic by BLOOMBERG

THE ringgit is expected to continue to be under pressure this week, as the crude oil price will remain at near historic low level and fuelled by the volatility of the US financial market.

Last Friday, the ringgit lost further grounds against the greenback, closing at 4.2775 after dropping to a low of 4.2957.

AxiCorp Financial Services Pte Ltd chief market strategist Stephen Innes said the oil market has traded in lockstep with the risk sentiment in Asia which has been bolstered by more stringent Covid-19 policy, particularly by the US.

“The longer oil prices remain low, it will continue to stress the ringgit. With the who’s who of corporate America drawing down on their US dollar revolving credit lines, the global funding squeeze will dissuade investors from adding emerging-market Asia foreign-exchange risk.

“But with the global mad dash for the dollar triggering the ongoing exodus of foreign money from the local equity and bond market, the ringgit, as well as the rest of the Asia, foreign-exchange complex will remain under pressure until at least the US’ market plumbing is fixed,” he said.

Last Friday, the Brent was trading between a range of US$32.50 to US$35.22 per barrel.

Innes said the local currency should recover if Brent rebounds to at least US$40 (RM171.19) per barrel.

“The ringgit will need to see oil prices back at above US$40 per barrel to make any headway.

“The lower oil prices are still a concern and until Brent rebounds over US$40, there is still the risk of credit issues in the oil and gas sector,” he said.

However, Innes said the central banks’ move to pump liquidity into the financial markets is expected to eventually spur a rally.

“While central banks are showering the market with liquidity, at some point, the aggressive policy measures which were to counteract this expected economic downturn will eventually cause the market to rally.

“When people around the world spring out of the Covid-19 cocoon, they will be looking to make up for lost earnings and spending with a good head start with a bigger fiscal responsibility for the government.

“Ultimately, China policy is expected to kick in as the big fiscal policy deluge from them only starts when people return to work and businesses start to turn back on,” he said.

Innes added that the US Federal Reserve bank is expected to slash its interest rate to zero level in a bid to help its economy battle the coronavirus pandemic.

The US central bank announced last Thursday that it would inject about US$1.5 trillion into the bond markets to keep them afloat and prevent a 2008-credit crunch.

Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said that the ringgit is expected to hover around 4.30 during the week.

“Rallies in the ringgit will only be temporary as will be the case for most emerging-market currencies globally.

“The ringgit will retest at RM4.30 against the greenback and break sooner rather than later,” he said.

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