Easing of MCO provides support for ringgit

By SHAZNI ONG / Pic BLOOMBERG

THE ringgit is likely to receive underlying support from the government’s allowance of the resumption of economic activities by certain companies which will inject optimism of a broader pickup of activity soon.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said as Putrajaya prepares for an exit plan from the Movement Control Order (MCO), the gradual reopening of the economy is favourable to the ringgit exchange value.

“The Covid-19 pandemic has been plaguing the global economy, and the market sentiment has been on a free fall. However, the number of new and active cases have been favourable recently, options for reopening the economy have become available sooner than expected,” he said.

He added that the continuous improvement in the virus spread data also renders a conscious decision on the timing for the possible restart of the economic activities.

Mohd Afzanizam, however, added that the appetite for safe-haven currencies could continue to exert pressure on the ringgit’s performance.

“This is not unique to Malaysia as the pandemic is very systemic and therefore, demand for safe-haven currencies is very dominant during this period. There seems to be hoped that the reopening of the domestic economy could help the ringgit appreciate,” he said.

Mohd Afzanizam noted the ringgit should linger around RM4.35 in the immediate term as concerns over a sharp decline in crude oil prices could hit the ringgit.

Oanda Corp senior market analyst for Asia Pacific Jeffrey Halley said the collapse in oil prices has impacted the ringgit over the past month as the government derives 20% revenue from the petroleum sector.

“Much of the drop in value can be laid at the fall in crude oil prices. The local unit has rallied in the past 24 hours because of the generally positive sentiment sweeping markets globally and not because of the MCO announcement.

“Its effect is almost irrelevant as the ringgit is buffeted by events on the world stage and not the local stage,” he told The Malaysian Reserve in an email yesterday.

Halley noted with oil being a key driver, the ringgit has been mostly weaker against Asian currencies.

Over the past month, the ringgit-yuan has fallen from 1.6630 to 1.6255, Singapore dollar-ringgit has raised from 3.020 to 3.076. The ringgit-yen has fallen from 25.50 to 24.49.

The ringgit-baht is almost unchanged at 7.448 but that belies the extreme range seen in the cross this month as volatility in the baht remains elevated.

Halley added that the ringgit can thank the rapid increase in the “peak-virus” sentiment for its recent appreciation.

“This has lifted emerging and developing market stocks and currencies globally. Much is being pinned on reopenings in Europe and partial ones in the US to give a boost to economic growth.

“That will happen as long as the second wave of Covid-19 does not sweep the world, but it will not be a V-shaped recovery,” he stated while added in the near-term momentum remains with the ringgit.

Hailey opined there are a lot of moving parts in the equation which could affect the ringgit.

This includes reports from big tech in the US over the next few days, the US’ GDP and the initial jobless claims, the release of official China’s manufacturing and non-manufacturing Purchasing Managers’ Index, he said.

The markets await rate decisions from both the Federal Open Market Committee and the European Central Bank in the next 24 hours.

“Malaysia itself has a Parliament sitting on May 18 with an immediate confidence vote in the new government. The resignation of former Prime Minister Tun Dr Mahathir Mohamed and the return of identity politics have unsettled international investors,” he said.

Putra Business School associate Prof Dr Ahmed Razman Abdul Latiff said ringgit fortunes are linked to a recovery in China and trade.

“If other countries are not able to control the outbreak for a few more months, this can cause disruptions to Malaysia’s trade.

“If China can resume its economic activity just like before the Covid-19 outbreak, there is a good chance the ringgit will recover by early next year,” he said.

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