Ringgit, KLCI to trade mixed this week

The spectre of domestic political uncertainty will again weigh on the ringgit’s performance over the near term, says analyst


THE ringgit and the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) are expected to trade mixed this week as investors wait for fresh catalysts.

All eyes will be on the latest political development as Opposition leader Datuk Seri Anwar Ibrahim is expected to have an audience with the King tomorrow, prompting the investors to adopt a wait-and-see approach in addition to rising Covid-19 infections both locally and abroad.

FXTM market analyst Han Tan said the spectre of domestic political uncertainty will again weigh on the ringgit’s performance over the near term.

“Such pressures should prove transitory once there is more certainty surrounding Malaysia’s policy outlook. US political shenanigans surrounding the next round of fiscal stimulus are expected to be the primary driver of global risk sentiment at present,” he said in a note last Friday.

Tan added that shifting market expectations surrounding the next stimulus package could likely move broad asset classes, including global equities and the US dollar/ Asia complex.

The US dollar/ringgit was put in a stable performance last week, sticking to a tight range within the 4.145-4.165 lines.

The Chinese yuan’s strong performance after returning from a week-long holiday encourages regional currencies to explore more of their upside against the US dollar, with the Singapore dollar, Thai baht and the ringgit having positive correlations with the yuan, Tan noted.

“The undeterred expectations for an agreement over the next US fiscal stimulus package also ensured that the greenback is stuck to its weakening bias while alleviating pressures on Asian currencies,” he said.

Tan said Malaysia’s August industrial production data is expected to register a 0.2% year-on-year (YoY) increase.

“However, a better than expected reading could support the ringgit, even as the currency remains primarily influenced by extraneous factors,” he stated.

For the week ahead, Tan said the US dollar/ringgit’s 100-day moving average (MA) is set to cross below its 200-day counterpart, affirming the ringgit’s gains against the greenback, while potentially paving the way for the ringgit to strengthen further.

“The currency pair’s 50-day MA is expected to guide it downwards, potentially towards 4.108, although a breach of the 50-day MA could call upon the 4.1777 line as a resistance level, having already proved its worth in September,” he said.

Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said the US Federal Reserve is still imploring its Congress to deliver an immediate fiscal stimulus boost to the economy.

“While the calls are starting to sound a bit like a broken record, stocks continue to surge as investors give US lawmakers the benefit of the doubt, while recognising that regardless of who wins the election, the first order of business will be the passage of a hefty fiscal package,” he told The Malaysian Reserve.

Halley noted that this is ostensibly good for Asia risk as a blue wave election win would see a lessening in political tensions between the US and China.

Crude oil prices remain supported and favourable for the ringgit, as prices are only leaning on exogenous factors like oil worker strikes in Norway and Hurricane Delta in the US, he added.

“Still, even a skinny US stimulus will go a long way to shoring up demand in the world’s largest oil consumer, the US.

“But an ominous political background continues to cloud the viewfinder that in my view will slow the pace of the ringgit catch-up play with the yuan,” he said.

Halley added that all things remain favourable on the medium-term outlook, but still, there could be a few bumps along the way due to political squabbling and the uncertain trajectory for oil prices over the near term.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said concerns on rising global Covid-19 infections were overshadowed by US President Donald Trump’s improving health condition last week, which helped calm investors’ nerves on political uncertainty.

Adam also said hopes for stimulus were restored somewhat after Trump said he was ready to sign off on piecemeal measures, including support for individuals, small businesses and airlines.

This helped partially outweigh the jitters from the domestic political front as Anwar was granted an audience with the Yang di-Pertuan Agong tomorrow, he said.

“All eyes would be on Anwar’s audience with the Yang di-Pertuan Agong tomorrow, and until then, the market will be filled with lingering political uncertainty,” he said.

Investors were buying speculatively into Anwar-linked counters like Advance Synergy Bhd, Pan Malaysia Holdings Bhd, Pan Malaysia Corp Bhd, Malayan United Industries Bhd and MUI Properties Bhd last Friday.

Malaysia’s industrial production index data for August will be released today and it may slow down a bit from the previous month, owing to the decline in Malaysia’s Manufacturing Purchasing Managers’ Index, which dropped to 49.3 in August from 50 in July and also lower exports growth of -2.9% YoY in August 2020.

“Therefore, we would probably see the benchmark FBM KLCI trading within the range of 1,515 points to 1,535 points next week,” Adam said last week.