Volatile oil market, FOMC meeting to weigh down on ringgit

Researcher foresees the local note strengthening against the greenback but being curtailed by the low crude oil prices


TRADE in the ringgit is expected to be influenced by the volatility in the oil market’s outlook.

Kenanga Investment Bank Bhd said this comes after lingering concerns over global oil demand could drag crude oil prices lower, potentially pushing the ringgit to trade lower this week.

“Further US dollar weakness ahead of the Federal Open Market Committee’s (FOMC) policy meeting and rising global Covid-19 cases could offset the ringgit downward pressure,” the firm said in a note yesterday.

The ringgit closed at 4.1435 against the greenback yesterday, strengthening by 65 points.

The firm added that the ringgit weakened to above 4.15 levels versus the US dollar as Brent crude oil price fell below US$40 (RM166) per barrel for the first time since mid-June and a sudden spike in local Covid-19 infections.

“Improving economic data and upbeat Bank Negara Malaysia comments have helped limit further the ringgit depreciation,” the firm said.

OCBC Treasury Research in a note stated Brent fell below US$40 a barrel once again with selling pressure on crude oil appears to be picking up now, consistent with the risk-off theme across global markets.

In terms of technical reading, Kenanga said the five-day exponential moving average signals an extended week of potential bullish for the US dollar this week, with the ringgit expected to depreciate by 0.18% to 4.159 against the greenback from its closing price of 4.152 last Friday.

“The short-term technical outlook shows the US dollar may test the pair’s upside at (R1) 4.164 and potentially hit (R2) 4.177 level. Conversely, a potential downside could tilt the pair towards (S1) 4.145 and (S2) 4.139 support level,” the firm said.

Rakuten Trade Sdn Bhd expects the currency to trend between 4.10 and 4.20 against the US dollar by year-end.

Rakuten Trade head of research Kenny Yee said the ringgit had strengthened to around 4.15 versus the US dollar from a year low of 4.45.

“We reckon the greenback would remain volatile and foresee the local note strengthening against the US dollar but being curtailed by the low crude oil prices,” he said during a virtual market outlook media briefing yesterday.

Yee said the US dollar had weakened due to a combination of factors, including the low interest rate and the US Federal Reserve’s (Fed) printing of money to save companies while reducing the risk of the global economy due to the Covid-19 pandemic.

“This should make the ringgit strengthen more by year-end,” he added.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said the ringgit may trade within a tight range of 4.14 to 4.15 this week ahead of the US’ FOMC meeting in focus and ongoing tensions between the US and China.

“Perhaps, the details of the upcoming Budget 2021 will affect the ringgit. Next year will be a year of recovery, so any policies to strengthen that will be welcomed strongly by the currency market,” he told The Malaysian Reserve in a brief reply yesterday.

As for the US dollar, Adam said the currency should remain rangebound until the FOMC meeting.

“Fed officials will perhaps offer details on their new inflation targeting strategy. The meeting will be the first after the Fed unveiled a new strategy that will keep interest rates lower for longer in a bid to achieve maximum employment for the benefit of the poor,” he said.