OPEC+ deal and Penjana stimulus lift ringgit


THE ringgit is expected to gain against the greenback as investors pin their hope on the RM35 billion short-term National Economic Recovery Plan (Penjana) intended to aid in the economic recovery jolted by the Covid-19 pandemic and stronger energy prices.

AxiCorp Financial Services Pte Ltd chief market strategist Stephen Innes said investors would find the ringgit to be more beneficial against its peers across the region due to Malaysia’s position as an oil and gas producer.

“The ringgit should look good on several fronts this week as a result of the positive outcomes from OPEC+.

“With the improving risk sentiment and decreasing volatility in the equity and currency markets, investors who are hunting for yield would see the catch-up trades across the region, where the ringgit could benefit in the context of improving sentiment across regional peers,” he said.

He added that traders were trying to get positions in line for this week’s US oil inventory data report as the ringgit closed at a three month high of RM4.25 against the greenback yesterday.

On Monday, the OPEC+ producers cartel agreed to extend production cuts for another month, which will see the 24-nation oil-producing group keeping its production at 9.7 million barrels per day until July 31.

According to the new deal, countries who failed to meet the deadline would have to lower their production in July, August and September.

“Oil prices are showing signs of topping out for now after the OPEC+ agreement to extend by one month from the existing first stage agreement for output cuts.

“The positive momentum in oil prices driven by OPEC+ output cuts and the need to be followed up by an uptick in demand will see higher prices,” Innes said.

He added that while the equity markets are looking ahead for a recovery in corporate profits in 2021, the energy markets do not have the luxury to be as forward-looking.

“Oil demand remains weak in the US and big states that drive the US economy need to open with a driving boom. But ultimately, without the return of travel between the world’s three largest regions — the US, the European Union and China — demand could be slow to pick up,” Innes said.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the ringgit has appreciated in tandem with the gradual reopening of the local economy and the flattened infection curve.

Mohd Afzanizam said the ringgit should remain positive against the US dollar in the second half of 2020 despite sporadic volatility expected during the period.

“Further appreciation will hinge upon how the economic recovery is and how durable the recovery phase would be,” he said.