USD/MYR pair likely to trade at 4.6 by end-2017, says Commerzbank

Since the U.S. Presidential elections on 8 November, the Malaysian ringgit has underperformed against its peers. The Malaysian currency has depreciated about 6 percent against the US dollar as against the average drop of about 3 percent for the Asia excluding Japan currencies.

The ringgit has mainly fallen due to strong USD backdrop and vulnerability to capital outflows. This is given its comparatively weak reserves buffer and high foreign ownership of government bonds. Moreover, the subdued investor sentiment, partially because of ongoing domestic political uncertain and worries regarding the reinstatement of capital controls have also weighed on the Malaysian ringgit.

This followed the Malaysian central bank’s ban on onshore licensed institutions from trading offshore MYR NDFs, noted Commerzbank in a research report. The reason was cited to clamp down on speculative activities. The ban is not expected to reverse USD/MYR upside bias given lingering political risks. This is expected to continue going into 2017, while the USD/MYR pair is likely to trade at 4.60 by the end of 2017, added Commerzbank.