Ringgit stunned by lockdown, record-high Covid-19 cases

At current level of RM4.14, analyst foresees the ringgit could weaken to hit RM4.15 against the US dollar during the week

by SHAHEERA AZNAM SHAH / Pic by BLOOMBERG

THE ringgit could be trading weaker following the government’s announcement of the two-week total lockdown last Friday, hitting RM4.17 should the trepidation spreads further among investors.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said a downward movement on the local currency is inevitable amid the heightened market volatility with the lockdown imposition and the high number of daily Covid-19 cases playing major contributing roles.

“At current level of RM4.1365, we foresee the ringgit could weaken to hit RM4.15 against the US dollar during the week.

“If markets continue to remain nervous about the lockdown and should the number of daily cases show no signs of a slowdown, we do not discount any possibility for the ringgit to hit RM4.17 later on,” he told The Malaysian Reserve (TMR).

The local currency dropped 0.1% to 4.129 against the greenback yesterday, while the 10-year bond yield held steady at 3.2%.

To recap, the ringgit settled at RM4.308 after the first Movement Control Order (MCO) was announced on March 16, 2020, and weakened by 3.1% to RM4.445 the following week.

AmInvestment Bank Bhd chief economist Dr Anthony Dass said at this juncture, forex traders may push back taper expectations while the dollar trade is likely to stay rough.

He added trading activities in the local bond market remained lacklustre with three-and five-year Malaysian Government Securities yields standing unchanged at 2.305% and 2.58% respectively.

However, the seven-year fell 0.5 basis point (bp) to 3% while the 10-year rose 0.5bp to 3.21%, Dass said.

“The bulk of the focus last Friday was on the reopening of the 5Y Government Issued Instrument auction with an issuance size of RM4.5 billion.

“The auction garnered a decent reception with bitcoin of 2.003 times and averaging at 2.728%,” he added.

On the local stock market, Adam said the FTSE Bursa Malaysia (FBM) KLCI could spiral downwards, reaching a range between 1,570 to 1,580 points in the short term as there is no market stimulus expected.

“The FBM KLCI could spiral downwards during the lockdown period and trade tightly within a range of 1,570 to 1,580 points as there are no major economic events such as central bank policy meetings.

“Recall that foreign investors sold more than RM1 billion of local equities for the week beginning March 16 to March 20 last year. Perhaps, foreign investors may react the same and exert some downward pressure on the FBM KLCI,” he said.

Malacca Securities Sdn Bhd is expecting a negative bias tone on the broader market over the total lockdown while believing investors would be focusing on vaccine or pharmaceutical-related stocks amid the ongoing Covid-19 vaccination programme.

Sectors such as technology and shipping that are linked in the global supply chain and personal protective equipment-related should continue to be operational under the full MCO and should get traders attention, the broker said.

“Local stocks may face selling pressure following the National Security Council’s decision to implement a total lockdown nationwide from June 1 on the back of spiking Covid-19 cases,” it said.