Room for ringgit to appreciate further


ANALYSTS forecast the ringgit to appreciate further to RM3.85 after the local note climbed to a 3 1⁄2-year high of 3.990 in intraday trade yesterday before closing at 4.003.

AxiCorp Financial Services Pte Ltd chief global market strategist Stephen Innes said the ringgit has been trading with a strong year-end bid as vaccine optimism wins the sentiment race versus the negative pandemic developments.

He said the quick roll-out of the vaccine in the UK is giving hope the vaccine’s logistical distribution throughout the rest of the world will be easily overcome, and will provide an economic boom globally sooner than expected.

“The ringgit is a huge beneficiary, as the stars around oil, exports and travel align, due to vaccine optimism that should clear the runway for a strong start to 2021.

“The late morning surge can be attributed to the US’ Georgia Senate polls,” he told The Malaysian Reserve (TMR).

Innes said the primary focus is entirely on the Georgia Senate elections on Jan 5, which could determine control of the Senate and Washington’s ongoing discussion about larger stimulus payments.

The results of Georgia’s two Senate elections today are crucial for determining the future’s political landscape. The current makeup of the new Senate is 50-48 in favour of Republicans.

Should Democrats win both races, this would put the balance at 50-50 with Democrats having the tie-breaker in VP-elect Kamala Harris.

“With the polls shading to a Democratic sweep such a result guarantees more extensive stimulus checks will be mailed out forthwith, and massive US infrastructure spending packages get fast-tracked through Congress in the first quarter (1Q).

“All of which, is boosting the commodity market sentiment and benefitting commodity exporter currencies like the ringgit,” he said.

Despite the recent gain and positive outlook, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid expects some correction to occur, especially when the technical readings show signs of an overbought condition.

“The general trend for ringgit is very positive in the immediate term,” he told TMR.

Mohd Afzanizam said the greenback’s weakness was the main driver for the ringgit appreciation.

The US Dollar Index has gone down further to 89.593 yesterday, while other currency pairs such as the yen and euro appreciated against the greenback.

“In the meantime, commodity prices, mainly the Brent crude, have been forthcoming as it lingers closer to US$53 (RM212.34) per barrel and currencies that are highly associated with commodities, namely the Aussie dollar has also gained,” he added.

The positive developments on the Covid-19 vaccines, slated to be ready for distribution by the 1Q of this year, pushed investors to cut their holdings on rubber glove stocks.

Hartalega Holdings Bhd contracted RM1.66 to RM10.48, Top Glove Corp Bhd lost 62 sen to RM5.50, and Supermax Corp Bhd gave up 50 sen to RM5.51.

Mohd Afzanizam said the FTSE Bursa Malaysia KLCI has been trading in negative territory driven mainly by declines in glove-related counters.

“Worries over Covid-19 new infection cases globally and the possibility of more restrictive measures on human mobility could be the main factors,” he said.

Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said strong regional manufacturing Purchasing Managers’ Index’s (PMI) had driven Asian currencies in general higher yesterday.

“The PMI data reinforces that Asian markets are continuing to recover from the Covid-19 recession.

“Expectations of a global economic recovery will see a global shift out of defensive US dollar positioning in 2021, leading to further ringgit appreciation,” he told TMR. His initial target remains at RM3.85 versus the US dollar.