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The USD/MYR currency pair is currently holding steady at 4.17 level but it has risen steadily by 8 percent since the low in March of around 3.8550. According to Commerzbank’s latest research report, the bias remains to the upside with the 4.2000 as the next key psychological level.
The new Pakatan Harapan (HP) coalition government is scheduled to present its first federal budget on November 2. The rumors and leaks are coming thick and fast in relation to a sharp upward revision for the 2018 budget deficit to as high as 3.6-3.8 percent of GDP vs. 2.8 percent originally.
The main reason is due to the recognition of previous off-budget spending in the name of greater transparency and accountability. Nevertheless, the rating agencies may not take it lightly and there is still the risk of an outlook downgrade.
However, the government may be able to stave off any rating action or any adverse market reaction if it can demonstrate 1) a commitment to greater transparency; 2) measures to help shore up tax revenue, especially after the swift abolishment of the goods and services tax (GST) from the new government; and 3) a commitment to fiscal consolidation, the report added.
The government has already abandoned the unrealistic balanced budget target for 2020 and is instead targeting 3 percent of GDP and probably around 3.3 percent for 2019. For USD/MYR, it may be a case of “buy the rumors and sell the facts” as officials are seemingly keen to prepare the market for bad news.
