The correction in the ringgit-US dollar trade is due to uncertainties such as the US-China trade war and domestic political landscape
by SHAHEERA AZNAM SHAH / pic by TMR FILE
MALAYSIA’S political climate is risking investors’ appetite for the local currency and could lead it to trade weaker against the US dollar for the remainder of the year.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the renewed strength in the greenback could erase the gains the ringgit has made in the past few weeks.
The correction in the ringgit-US dollar pair trade is due to uncertainties such as the trade war between the US and China, a possible hard Brexit and the domestic political landscape.
“When that happens, to some extent, it confirms our suspicions that the sharp appreciation of the ringgit will soon be reversed as the uncertainties remain highly visible.
“We foresee the ringgit-dollar rate could stay weak and maintain our year-end target of RM4.25,” he told The Malaysian Reserve.
He expects ringgit could hover between 4.16 and to 4.18 in the immediate term.
FXTM market analyst Han Tan echoed a similar view that the local currency could trade at 4.1757 against the greenback as the US presidential election nears in November.
From a technical perspective, Tan said the 4.1757 level is a break above the currency’s month-to-date high, while making its way towards the 50-day moving average (MA), which currently resides around the 4.19 level.
“The currency pair’s 50-day MA has not been truly tested as a resistance level since early-June when it gave up its role as a key support level, but heightened political uncertainty or risk aversion might just do the trick,” he noted.
The 4.10 psychological level could come back into focus over the near term should the cloud of political concerns dissipate and investors’ risk appetite can make up lost ground,” he said in a report last Friday.
The ringgit fell to 4.1735 in yesterday’s trade from 4.1670 last Friday.
Tan added that the US presidential election is set to be one of the significant events and it will be imperative for investors to have a strong grasp of potential outcomes as early as possible.
“Global investors must remain vigilant and brace for potentially more volatility, induced via the political channels, over the near term.
“Market participants are expected to pay close attention to the first US presidential TV debate between President Donald Trump and Democratic challenger Joe Biden,” he added.
They will meet for three debates and the first debate is scheduled to kick off today.
The ringgit eased against the dollar after the US Federal Reserve voiced intent on keeping its interest rates low, while hinting at a sooner than expected recovery.
The JP Morgan Global Composite Purchasing Managers’ Index’s performance in August rose to 52.4 points, two consecutive months of above 50-point readings.
The ringgit’s recent strength was backed by Malaysia’s Leading Index which rose 7.7% to 109.2 points in July, the third month in a row of positive increases after recording 5.7% contraction in April.