Ringgit to test within 4.00 level ahead of OPR cut, US relief plan


THE ringgit is likely to be tested within the 4.00 level this week ahead of the anticipation of the government’s stance on the Overnight Policy Rate (OPR), while the market is being pacified with political stability following the proclamation of the emergency.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said the ringgit could trade within a range of 4.03 to 4.06 in the next two weeks.

“The fluid domestic political landscape previously led to some depreciation in the ringgit against the US dollar.

“The state of emergency, which entails that no general election could be held, could ease the fluid domestic political landscape, hence boosting investors’ confidence on the local currency,” he said.

On average, the ringgit appreciated by 1.8% against the greenback last year, settling at 4.020 on Dec 31 — the strongest level since June 25, 2018.

Moving into 2021, the ringgit depreciated by 0.3% against the dollar as of Jan 14.

“On further scrutiny, the ringgit weakened slightly by 0.1% against the greenback a day after the Movement Control Order 2.0 announcement last Monday, but later rebounded by 0.3% last Wednesday, as investors digested the declaration of the state of emergency,” Adam said.

The Monetary Policy Committee is scheduled to have its first meeting for the year on Wednesday and will determine whether the coun- try’s interest rate will reach a new low through another 25 basis points reduction.

On the global front, Adam believes further details on the US$1.9 trillion (RM7.68 trillion)-Covid-19 relief plan unveiled by President-elect Joe Biden will also steer the local currency this week.

“The US fiscal stimulus package is a catalyst for the ringgit as it could boost spending and subsequently contribute to global economic growth as US demand for goods from other parts of the world could increase.

“Looking ahead, the performance of the ringgit will also be catalysed by the movement in oil prices, which has gained some momentum since Saudi Arabia pledged to cut an additional one million barrels per day of output in February and March this year,” Adam said.

Named American Rescue Plan, the financial relief proposal includes plans to sustain families and firms until vaccines are widely distributed, which is among the priority spendings sought by Biden in the first few months of his presidency.

Oanda Corp Asia-Pacific senior market analyst Jeffrey Halley said the anticipation of US yields’ rally this week is expected to weigh down the ringgit and other regional currencies as the expectation of the US debt issuance will boost the bond yields.

“The major factor that influences the ringgit at the moment is the direction of the US yields, and not specifically domestic factors.

“If US yields continue to move higher into next week, we are likely to see further weakness in the ringgit and Asian currencies in general, as the expectation of huge US debt issuance this year pushes bond yields up,” he said.

He expects the pressure on the US dollar will be dragged into February as the US yields will continue to edge higher.

“With that in mind, I expect the US dollar-ringgit trading to continue rising, trading between 4.0800 and 4.1200 this week, possibly as high as 4.1500 into the end of the month,” he said.