Ringgit to hold steady on MGS yield and a possible OPR cut

by SHAZNI ONG/ pic by TMR FILE

THE ringgit is expected to climb to hold steady against the greenback, driven primarily by the weaker dollar that tumbled the most in 10 years that raised doubt on the recovery of the world’s biggest economy.

AxiCorp Financial Services Pte Ltd chief global market strategist Stephen Innes said adding to the narrative, the monetary policy debate which is centered on whether Bank Negara Malaysia will offer up a cut or a dovish pause at the Sept 10 policy review also stoked excitement for the currency.

“Also, oil prices are stabilising, which is always a positive thing when views through the lens of Malaysia depleted government coffers,” he said.

He further added that the global chase for yield is found in Malaysian Government Securities (MGS) as positive real yields remain exceedingly favourable compared to US negative real yields.

The ringgit tumbled down from a high of RM4.29 last month to RM4.22 on Monday, despite improvement in oil and recovery for market economies.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid (picture) said it is quite possible for the ringgit to touch RM4.20 against the US dollar in the near term.

“However, we still maintain our year-end target RM4.25 given that demand for the greenback will continue to hold up in light of the uncertainties. This could change should the final testing for Covid-19 vaccine become successful.

“If that’s the case, the risk-on mode would prevail which then could result in further appreciation of ringgit. For now, it remains uncertain and fluid,” he told The Malaysian Reserve yesterday.

Mohd Afzanizam agreed that the strengthening of ringgit was precipitated by the US Federal Reserve’s commitment to maintain an extremely accommodative monetary stance.

“The resurgence of Covid-19 in the US which led some jurisdictions to restrict human mobility also has resulted in concern on the durability of its economic recovery.

“The US Congress is still at loggerheads on extending the jobless benefits whereby the US$600 (RM2,520) per week extra payments to the unemployed have expired at the end of July. So it’s very much to do with the dollar weakness that led to the rise in ringgit against the dollar,” he said.

As for major events that will dictate the value of the ringgit, Mohd Afzanizam opines the escalation of the trade war between the US and China.

“This is the wildcard as we head to the US presidential election in November this year. And of course, the resurgence of Covid-19 which could lead to lockdowns or Movement Control Order,” he said.