Ringgit gets boost from US fiscal stimulus

by RAHIMI YUNUS / pic by BLOOMBERG

THE ringgit rose 0.95% to 4.386 against the greenback, signalling financial market strains are abating following a dramatic US$2 trillion (RM8.77 trillion) liquidity injection by the US into its markets.

The local unit fell to its lowest since 2017 at 4.4485 on Monday, along with many other emerging-market currencies, after the US Federal Reserve (Fed) announced massive loan programmes. The Fed pledged to provide an unlimited quantitative easing to ward off a credit crunch after investors scrambled to buy the greenback as a safe haven amid the coronavirus pandemic.

Juwai IQI chief economist Shan Saeed said the US currency is expected to depreciate gradually as Washington prints more dollars and thus provides more room for commodities such as oil and currencies including ringgit to bounce back.

“The US dollar will be weakening slowly in a structured manner. Subsequently, the oil price will go up as the dollar stays low. These factors will move the ringgit and Asean currencies higher,” Shan told The Malaysian Reserve (TMR).

He said the local note and other currencies within China’s Belt and Road network tend to advance in tandem with yuan, which has gone up from 7.1216 to 7.0779. He added that the ringgit will maintain its stability versus other regional counterparts.

Shan said the ringgit will be hovering between 3.97 and 4.30 levels this year on the back of an expected long recovery in the US, while Europe will be stretched to the limit during the virus crisis.

He expects the local unit to trade in the range of 4.15 and 4.30 in the next two quarters.

Brent crude oil price climbed to about US$28 per barrel yesterday, but Shan said this is still far from the break-even price for US shale companies at between US$48 and US$54.

The Dollar Index, a measure of the US currency against a basket of six major rivals, dropped by 0.9% to 101.60 level on the Fed’s easing from the previous peak of almost 103, its highest level since January 2017.

The ringgit has been holding its own against Indonesian rupiah, Philippine peso and Thai baht that are facing supply and demand shock due to the virus outbreak.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said the greenback would stand tall against most currencies as investors would naturally flock back to safe-haven financial assets that are denominated in the US dollar or Japanese yen.

“Even before we saw Malaysia’s Covid-19 cases accelerated in March, there were already net foreign outflows from the local bond market to the tune of about RM8 billion in February.”

“Combined with net foreign outflows from the equity market, Malaysia recorded total net foreign outflows of RM10 billion in that month. So, we can expect the trend to continue for a while and that will weigh on the ringgit-US dollar exchange rate,” Nor Zahidi told TMR.

He added other regional markets are also experiencing capital outflows, and hence, their currencies were also affected.

As such, he said the situation has been one of the main reasons for the ringgit’s stability against regional currencies.

AxiCorp Financial Services Pte Ltd chief market strategist Stephen Innes said in a daily note yesterday that higher oil prices and a slightly weaker US dollar should release some pressure on the ringgit.

Regardless, Innes expects the ringgit to remain in the autoclave due to the domestic economic shock stemming from the virus.

AmBank Research said besides the current uncertain and volatile environment, some short-term optimism is emerging including growing signs the US Congress will agree to the US$2 trillion fiscal stimulus package and optimism the US president will likely end the lockdown by the second quarter.

In a report yesterday, AmBank Research stated that the ringgit will find support levels at 4.39 and 4.41, while resistance is pegged at 4.45 and 4.47 against the greenback.