Upside bias likely to persist for USD/MYR in near-term following domestic political chaos

Upside bias in the USD/MYR currency pair is expected to persist in the near-term following ongoing domestic political chaos, like the protests against the government related to the ongoing 1MDB investigations overseas.

Malaysia’s central bank (BNM) issued a second statement last week on November 16, reiterating its stance to request onshore banks to stop trading in the offshore NDF (non-deliverable forward) market for MYR. This followed the first statement on November 13 where it elaborated that there are in fact no new rules imposed on onshore MYR trading or to the Foreign Exchange Administration (FEA) rules.

BNM however can only control activities of banks with onshore licenses and as such, offshore banks with no local presence may still continue to provide NDF quotes. The NDF liquidity may be lower however with less players, resulting in wider spreads for those who would still need to rely on the NDF market for hedging purposes, Commerzbank reported.

Spot USD/MYR has risen by over 5 percent since end-October. The 1-month NDF USD-MYR surged over 9 percent at one point on November 11, it has moderated but is still 6 percent higher since end-October to 4.4470.

"We expect BNM to step up interventions to mitigate excessive volatility. One supportive factor for MYR is that the economy is still to expand by over 4 percent this year on domestic demand despite the weak external environment, underlining the economy’s resilience," the report said.