An analyst says it’s quite obvious that the ringgit would remain under stress versus USD as the world liquidates in a panic and moves to cash

By DASHVEENJIT KAUR / Pic By BLOOMBERG

THE Malaysian ringgit has fallen to 4.4125, its lowest since January 2017, and a further downfall is expected as mass liquidation would continue to disrupt the global foreign-exchange markets.

Analysts are of the opinion that all the world’s currencies are coming under pressure against the US dollar (USD), which is experiencing a surge in demand amid the global financial market meltdown linked to the novel coronavirus outbreak.

The ringgit has also weakened in tandem with lower crude oil price, which was about US$26 (RM114.76) a barrel (at press time), as Malaysia is a net oil exporter.

On Jan 4, 2017, the ringgit traded at 4.4975 against the greenback.

Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said it is quite obvious that the ringgit would remain under stress versus USD as the world liquidates in a panic and moves to cash.

“With oil collapsing and countries shutting borders, a recession could hit the world. I would expect the ringgit to under-perform versus the Singapore dollar (SGD) and Japanese yen (JPY).

“And hold its own against the Indonesian rupiah (IDR), Philippine peso (PHP) and Thai baht (THB), which are all facing supply and demand shocks due to the coronavirus pandemic,” he told The Malaysian Reserve (TMR) yesterday.

Halley also highlighted that realistically, developing markets can expect no meaningful inflows over the next two months.

“As for Malaysia, the ongoing political turmoil and government’s stay at home policies will put the country at the bottom of the pile as an inward investment destination,” he added.

The ringgit recorded its sixth day of losses yesterday, extending its losing streak at an alarming level, as the looming fear of a pandemic-driven global recession continues to cause an economic turmoil.
Halley believes the ringgit could retest the Asian financial crisis highs of 4.8000.

AxiCorp Financial Services Pte Ltd Stephen Innes echoed the sentiment that the ringgit will continue to weaken as the US dollar’s liquidity runs dry.

“All the usual negatives on top of the oil war and poor China mobility that causes a broken supply chain,” he told TMR.

Innes said there is a good chance for the ringgit to breach 4.50 levels, but China’s yuan (CNY) would need to move closer to 7.17 against the greenback. At press time, CNY continued losing its ground against the USD, trading at 7.09.

Fundamentally, Innes said the dollar should be nowhere near this strong.

“But there is so much deleveraging of foreign assets going in, it just all spills back into the need for the greenback.

“Ironically enough, I still think the USD/CNY would trade at 6.90 and USD/ringgit closer to 4.00 by the end of 2020. Very strange markets these days, but no point fighting it,” he added.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the USD index has surpassed the 100-point level and is currently hovering at around 101.32 points.

“This is the highest since early 2017. The risk-off has become so prevalent, leading to demand for safe haven.

“Judging from the large scale reversal in the equities market, massive responses from major central banks which have led policy rates nearing zero rate, as well as swift action by the fiscal authority to provide fiscal injection to the economy, clearly showed the Covid-19 pandemic could potentially bring the global economy to recession,” he told TMR.

In that sense, Mohd Afzanizam is of the opinion that emerging market currencies will continue to be very volatile as investors would seek shelter against market volatility.