Volatility looms for the ringgit as economic indicators due

By SHAHEERA AZNAM SHAH / Pic TMR

THE local currency is set for another round of volatility this week amid the adverse signals indicated by global economic performances during the Covid-19 pandemic, said analysts.

The rise in unemployment rates globally has caused a decline in consumers’ buying power, which in turn disrupts business sentiment, Bank Islam Malaysia Bhd chief economist Dr Mohd Afza- nizam Abdul Rashid said.

“Economic indicators have been bleak, especially the labour market as the US economy lost 20 million jobs in April which raises its unemployment rate to more than 14%. Malaysia also saw a significant jump in its unemployment rate to 3.9% in March from 3.3% in February.

“The foreign exchange markets will continue to endure the weak economic performance in the immediate term as the global economy is being affected by lockdown measures,” he told The Malaysian Reserve (TMR).

Such sentiments have already been priced in by markets, with the US dollar index rising to 102.87 in March and lingering around 99.734 currently.

“Brent crude oil prices have also improved to US$30.97 (RM134.10) per barrel as the OPEC+ begin cut- ting their oil production this month.

“In that sense, the flight to quality has improved which saw the ringgit at around RM4.30 against the US dollar at the end of April,” Mohd Afzanizam said.

The local note sank to close at 4.3310/3370 against the greenback last Friday, versus Thursday’s close of 4.3320/3280. It also weakened against the Singapore dollar, Japanese yen, euro and British pound.

According to Mohd Afzanizam, plunging business sentiments reflected by the sharp decline in Purchasing Managers’ Index and higher unemployment rates will remain until the world is in the clear for Covid-19.

Markets and currencies will be tested by several major economic announcements scheduled for this week.

“This week, there will be a series of high impact economic indicators to be released including China’s Consumer Price Index (CPI) today with the consensus looking at a 3.7% year-on-year (YoY) increase after a 4.3% rise in the previous month.

“The US will also be reporting their CPI on Tuesday (Wednesday Malaysia time) which is expected to come in 0.8% higher YoY in April,” Mohd Afzanizam noted.

The UK will publish their first quarter of 2020 (1Q20) GDP performance on Thursday, while Malaysia is also slated to announce its 1Q20 GDP numbers tomorrow.

Analysts have forecast declines of between 0.8% and 4.2% in light of the impacts of Covid-19 and the Movement Control Order (MCO) on the domestic economy.

“All eyes will be on Malaysia’s 1Q GDP, and we are looking at a very minimal growth,” Mohd Afza- nizam said.

Bank Negara Malaysia has projected Malaysia’s GDP to come in between -2% and 0.5% for 2020 due to the pandemic. It also warned the economy would be particularly hit in the 1Q, though this was prior to the MCO being extended to June 9.

Standard Chartered said recently it expects 2Q20 GDP to be “significantly worse” than 1Q20, as the MCO has only been eased to Conditional MCO last Monday.

Independent financial consultant and investment analyst Leong Hoe Kit said the ringgit could test the RM4.30 and RM4.40 range against the greenback this week, while the FTSE Bursa Malaysia KLCI could trade within the 1,350 to 1,410 range.

“The ringgit could be under less threat of weakening now that the Brent crude oil has reached the US$30 per barrel level.

“However, concerns remain as to whether the US will ramp up threats of further tariff increases on Chinese products in the yet to be concluded US-China trade war,” he told TMR.

The performance of Malaysian equities is also expected to track developments in other foreign markets, Leong added.