Ringgit tied to virus numbers, domestic politics

The ringgit began weakening early this year and has continued to weaken in the last 2 months while US dollar strengthened


THE ringgit is expected to continue to remain weak due to the political risks layered with the rise in Covid-19 cases which impact expectations of economic opening from lockdown measures.

Stock market and foreign-exchange trader Ezone Constantine said the ringgit began weakening early this year and has continued to weaken in the last two months as the US dollar has strengthened.

“The US dollar is in the process of recovery which will be a problem to the ringgit. The ringgit will weaken further as the country remains under the restrictions order, which sees most businesses close, as well as the political scenes and rising number in Covid-19,” Constantine told The Malaysian Reserve (TMR).

Constantine, who is also the founder and CEO of Quanz Solutions Sdn Bhd, said the ringgit has the potential to move sideways, but it will not go much higher due to its strong decline.

“For the next two weeks, we anticipate ringgit may have a mild technical rebound only if Malaysia political scenes muffle and Covid-19 cases number go rapidly down,” he said.

The trader opined the greenback could strengthen against the ringgit in the upcoming weeks.

“Technically, if the US dollar strengthens, businesses that deal with the currency such as the glove industries, will be pleased,” Ezone said.

He anticipated that the US dollar will retrace towards the 4.16 region which may help to slow down the weakening of the ringgit.

“However, I will change my view as time goes by if the price can crawl back below 4.14 regions, the ringgit may have the possibility to strengthen over the long term,” Constantine noted.

Kenanga Research economist Afiq Asyraf Syazwan Abd Rahim said Malaysia’s fundamentals remain good with exports and crude oil prices are still high.

“Our fundamentals are really strong despite the political uncertainty and Covid-19 situation. I expect the ringgit will trade between 4.2 to 4.3 level unless there is a major political breakthrough,” Afiq Asyraf Syazwan told TMR.

The economist said that the US Federal Reserve tapering its bond purchases may also cause the ringgit to weaken.

“We will be focusing on the Jackson Hole summit of central bankers that will be held by the end of this month and see if there is any sign of tapering that will weaken the ringgit,” he said.

The economist noted the country’s speedy vaccination rollout is encouraging and positive for the ringgit.

“Malaysia has been very quick and swift in vaccination, but my only concern is the supply issue. The current daily vaccination rate is about 500,000 and needs to be maintained in order for the country to achieve herd immunity by September. Once it is achieved, we can relax the movement restrictions and this will strengthen the ringgit,” Afiq Asyraf Syazwan stated.

The ringgit outlook is correlated to the Covid-19 situation in the country. He stated that, for example, Malaysia recorded its highest number of Covid-19 fatalities with 219 deaths this week that resulted in negative reaction on the ringgit.

The continuous rise in Covid-19 intensive care unit patients has limited the gain for the ringgit.

The economists forecast the ringgit to weaken to around the 4.23 to 4.25 level against the greenback this month due to the health and political risk factors.