USD/MYR likely to trade towards 4.50 in coming months, says Scotiabank

The Malaysian ringgit has gradually risen with a toppled volatility month-to-date due to measures introduced by the Malaysian regulators last December in order to stabilize local foreign exchange market, consistent with falling 10 year MGS yields. But the downward pressure on the MYR would continue and rise again in the coming months, noted Scotiabank in a research report.

“We stay vigilant on the MYR in the face of Fed rate hikes given the nation’s high foreign ownership of local government bonds and shrinking foreign reserves and current account surplus”, stated Scotiabank.

As of 13 January 2017, Malaysia’s foreign reserves reached MYR 422.9 billion as compared with MYR 424.2 billion as of 30 December. This is enough to fund 8.7 months of retained imports. But the detailed disclosure of the country’s international reserves indicates that there were USD 5.49 billion of predetermined short-term net drains on foreign currency assets as at the end of November. The current account surplus of Malaysia has been contracting, reaching 1.94 percent of GDP in September 2016 as compared to 17.96 percent of the GDP at the end of March 2009.

Resilient oil prices are not able to stimulate the Malaysian ringgit noticeably in spite of certain buffer given. Furthermore U.S. shale’s spare capacity would possibly cap upside room for oil prices. The Malaysian ringgit might depreciate again along with regional peers if the USD resumes it upward trend in the coming weeks, according to Scotiabank.

But the USD/MYR volatility is expected to remain low. The ringgit might not lead gains or losses in regional currencies, whereas the South Korean won is likely to remain a high-beta currency.

“USD/MYR is expected to rise and trade towards 4.50 in the months ahead, although the MYR may advance modestly in April on the back of traditional capital repatriation of the state-owned oil company”, added Scotiabank.