Ringgit trades higher on RCEP, GDP data

Optimism in the ringgit suggests the risk-on mode among investors is benefitting EM currencies including the local unit

by SHAHEERA AZNAM SHAH / pic by BLOOMBERG

THE ringgit is expected to get a boost from the recently concluded Regional Comprehensive Economic Partnership (RCEP) agreement and encouraging economic data, which suggest the domestic economy is recovering rapidly.

The ringgit-US dollar pair closed at 4.113 yesterday against 4.1228 last Friday.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the optimism in the ringgit, which has been trading higher for the past month, suggests the risk-on mode among investors is benefitting emerging-market (EM) currencies including the local unit.

“In the immediate term, the ringgit could be moving towards 4.10, but economic uncertainty remains. Any disappointment could result in a market correction, especially in areas relating to the vaccine,” he told The Malaysian Reserve.

On Sunday, Malaysia signed the historical free trade pact with 14 other RCEP participating countries, concluding eight years of negotiations.

The upward trajectory of the local currency has been the extension of the recovery signs forecast as the local GDP contracted at a smaller pace of 2.7% for the July-September period against 17.1% contraction in the second quarter (2Q), Kenanga Investment Bank Bhd (Kenangan Research) noted.

“The ringgit continued its post-US election rally last week on the back of better than expected Malaysia GDP data in 3Q and increasing Brent crude oil price.

“Externally, a strong pickup in China’s industrial production and retail sales data could help support Asian markets, prompting the ringgit to trade higher,” the research house said in a note yesterday.

It added that the ringgit’s appreciation has been capped by rising US Treasury yields on the back of positive news on Covid-19 vaccines, which has sparked selling pressure of the US government debt.

The US’ Treasury yields of the 10-year note were on the rise in October on the optimism of a fresh stimulus package to combat the Covid-19 infections, reaching four basis points to 0.78% on Oct 18, the highest level since Oct 9.

“The downside risk for ringgit remains amid the unceasing spread of the Covid-19 infections,” Kenangan Research said.

Fund inflows into cyclicals are set to boost Malaysia’s benchmark index, FTSE Bursa Malaysia KLCI, on the back of Malaysia’s 3Q economic data throughout the week, said Malacca Securities Sdn Bhd.

“The stronger than expected GDP growth versus the consensus forecast of a 4% contraction boosted the local benchmark to recover most of its losses,” it said.

The research house said the buying momentum appears to taper and a further recovery remains to be seen at the next resistance for the market benchmark is between 1,600 and 1,615 point levels.