Chinese economy’s positive GDP growth of 4.9% may have helped instil hope that the global economy could record a V-shaped recovery
by FARA AISYAH / pic by BLOOMBERG
THE ringgit could continue to strengthen on the signs of a sustainable recovery in the global economy.
The local unit improved marginally by 60 points to 4.142 yesterday. Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the positive GDP growth of 4.9% for China’s economy may have helped instil hope that the global economy could record a V-shaped recovery.
“This is also in line with the International Monetary Fund’s revision of the world’s GDP to -4.4% in its latest World Economic Outlook.
“There is hope a Covid-19 vaccine could be rolled out by year-end and fiscal stimulus talk in the US gaining some traction,” Mohd Afzanizam told The Malaysian Reserve.
He said while the situation is fairly fluid, hard data coming from China, such as retail sales and industrial production index, appear to have propelled a somewhat risk-on mode in the foreign-exchange (forex) market. AxiCorp Financial Services Pte Ltd chief global market strategist Stephen Innes expects the ringgit to improve moving forward.
“The ringgit could trade with a more favourable beat supported by oil prices that are not ready to buckle to Covid-19 just yet, shall the US stimulus hopes remain alive and the OPEC commitment to making sure oil prices to shift aggressively lower is unswerving.
“The yuan also continues to trade well, supported by a surging consumption engine, which will significantly benefit economies and currencies that export into the mainland like the ringgit,” he said in a note yesterday.
He added that the yuan continues to strengthen due to its superior economic backdrop relative to other currency trades and sets it at the top of the macro heap.
The better retail sales data for September in China continues to resonate, signalling domestic demand is holding up.
Simultaneously, the lack of short dollar viable alternatives is likely to keep people in the trade, with the upcoming US election deterring risk-taking, rising Covid-19 cases and restrictions in Europe with the pound-sterling experiencing Brexit-related volatility, Innes said.
Kenanga Investment Bank Bhd (Kenanga Research) stated on Monday that technical indicators suggest the ringgit could appreciate marginally against the US dollar by 0.03% to 4.149 this week.
“A sustained climb above 4.156 and 4.161 is needed to mark an extension of a bearish ringgit trend,” it noted.
Kenanga Research added that the ringgit tumbled last week on weakness in the energy market after OPEC trimmed its 2021 oil demand forecast.
The local note gains were capped by the risk-off mood of forex traders due to an alarming rise in Covid-19 infections in Malaysia and across the globe.
“Ringgit is seen to ride on yuan’s strength on the back of China’s positive economic data expectation this week.
“However, lack of risk appetite catalyst on the back of fading US stimulus hopes and lingering local political uncertainty are set to obstruct major upside for the ringgit,” Kenanga Research stated.