The Malaysian ringgit has recently pared some gains in the midst of a widely appreciating dollar and declining oil prices. If U.S. January inflation were to come in considerably above market estimate of 1.9 percent year-on-year, the U.S. equity markets would face renewed pressure. Moreover, the 10Y UST yield rose 3 basis points to 2.851 percent last Friday. U.S. President Donald Trump on Friday morning signed a two-year budget agreement that will stimulate federal spending by nearly USD 300 billion and suspended the debt ceiling through 1 March 2019, along with a stopgap spending bill to end a brief government shutdown, noted Scotiabank.
The spending package is likely to stimulate U.S. economic growth and to strengthen the long-term UST yields. But, Malaysia’s fundamentals remain sound in the run-up to the 14th General Election. Malaysia’s manufacturing PMI is continuing the uptrend along with a broadening current account surplus as percent of GDP. Furthermore, overseas funds continue to increase their holdings in Malaysian Government Securities, purchasing a net MYR 4.17 billion in January.
“We believe the MYR is still undervalued in terms of either the NEER or the REER, particularly if taking into account the nation’s growth and monetary policy outlook. The BNM’s real policy rate is still in negative territory despite a 25 bp rate hike delivered on 25 January”, added Scotiabank.
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