Ringgit gets oil lift as Covid numbers rise

The ringgit is expected to be fairly stable this week at the RM4.18 level against the US dollar, says economist 


IMPROVEMENT in Malaysia’s macroeconomic indicators and stronger crude oil prices are expected to strengthen the ringgit against the US dollar this week. 

Kenanga Research economist Afiq Asyraf Syazwan Abd Rahim said the US dollarringgit pair may trade below the 4.180 level due to short term weakness in the greenback, as well as the continuous rise in energy prices. 

“While the ringgit may strengthen ahead of the fourth quarter of 2021 GDP release (on Friday), the current spike in domestic Covid-19 cases may put downward pressure on the local note. To note, new daily cases jumped by more than 75% week-on-week on Saturday,” he told The Malaysian Reserve (TMR). 

He, however, noted that the impact of Covid-19 infection spike would be limited since Malaysia’s vaccination rate is relatively high and the country is aggressively giving out booster shots which have been highly effective against the Omicron variant. 

“Plus, we will not see another round of lockdown in the near term, unless Malaysia’s healthcare system gets overwhelmed, which is highly unlikely at this juncture,” he added. 

Yesterday, the number of daily Covid-19 infections in the country jumped to 10,089 cases. 

Health Minister Khairy Jamaluddin Abu Bakar had warned the figure may increase in the coming weeks due to the highly transmissible Omicron wave. 

Bank Islam Bhd chief economist Dr Mohd Afzanizam Abdul Rashid expects the ringgit to be fairly stable this week at the RM4.18 level against the US dollar.

He said there are two forces at work that can move the foreign-exchange market, namely the interest-rate hike narrative that has gained further traction when the Bank of England raised its benchmark rate by 25 basis points last week while the European Central Bank is also set to halt its asset purchases programme by March. 

“The other factor is crude oil price that has surpassed US$90 (RM376.24) a barrel, a level not seen for quite a while. Higher commodity prices should help underpin the value of ringgit,” he said. 

He added that the latest print on the US labour markets indicates the US Federal Reserve is on track to raise its policy rate in March. 

Mohd Afzanizam remains constructive on the ringgit. The possible rise in the Overnight Policy Rate (OPR), as well as the global recovery would make the ringgit undervalued, suggesting the upside risk, which is the appreciation of its value, is likely in the later part of the year. 

In addition, he said the rise in crude oil prices is likely to add more fiscal buffers which then would help support the local economy. 

The rising Covid-19 cases would lead into a “risk-off” mode in the market outlook, said Mohd Afzanizam. 

“To a large degree, we have become accustomed to such news and the government has also reiterated their commitment that there won’t be any lockdown. 

“In that sense, the process of reopening the economy is still intact, thereby we shall expect better growth this year. 

“At the moment, it’s a wait-and-see mode as the market would weigh the impact on the economy when the eventual event happens, the first-rate hike in the US and whether the inflation could be contained following the normalisation of monetary policy,” he said.