Home > Malaysia
Ringgit Can Strengthen In The Coming Weeks
"There’s a mild upside against the US dollar and stronger upside against the sterling,’" an analyst told StarBiz.
July 8th, 2016 | 09:53 AM | 1370 views
PETALING JAYA
There could be some strengthening of the ringgit in the coming weeks even as investors flee to safe-haven assets on Brexit worries.
Global financial markets continue to digest the impact of Britain’s vote to leave the European Union, better known as Brexit, as well as the implications the move would have on monetary policy and fiscal stimulus.
A technical analyst said the ringgit would likely trade higher against the US dollar and pound sterling. “There’s a mild upside against the US dollar and stronger upside against the sterling,” he told StarBiz. However, he said there would be an element of caution in the markets because of the uncertainties.
Based on past performance, analysts believe the ringgit would continue to be influenced foremost by the direction of commodity prices, and in particular, global crude oil prices. Oil prices have hovered in the US$50-a-barrel level for some weeks now, and the ringgit has hovered at around four to the US dollar level, mirroring the crude oil price movement.
Gold and higher-rated sovereign bonds, including US treasuries, Japanese government bonds, bunds and the Swiss franc have been the assets of choice for investors looking for shelter from the uncertain trading landscape. Another element that further underscores the challenges ahead would be the US Federal Reserve’s decision on the benchmark interest rate.
At this point, analysts believe US policymakers would not vote to hike interest rates because of the slowdown in global economic growth and the impact this would have on the US economy, where job creation has fallen since March. Analysts said a rate hike could come only in 2018.
US data has come in quite mixed, given the improved readings on private consumption and lower inflation against the backdrop of a lower-than-expected first-quarter economic growth.
This could leave a little bit of breathing space for policymakers in Malaysia, where economic growth shows a downtrend, with weak exports and tepid growth in private consumption as well as private-sector investment. There have been speculation that Bank Negara could cut the benchmark overnight policy rate to support growth, given that inflation, which peaked in the January-to-March period, has stabilised.
Citigroup Inc analysts said in a report dated July 6 that the improving outlook for the developed markets “continues to offer global markets a semblance of hope despite the despondent post-Brexit outlook”. They noted that US equity markets had put in an “impressive performance” on July 5 as sentiments rose following the better-than-expected data from the Institute of Supply Management showing an improvement in the services and manufacturing indices.
“It is worth noting that the aggregated G10 economic surprise index is already at its high for the year and within a whisker of its 2½-year high-water mark, even as the aggregated emerging market surprise index continues to fall,” they added. The G10 refers to France, Germany, Belgium, Italy, Japan, the Netherlands, Sweden, the United Kingdom, the US, Canada and Switzerland.
“This improving economic outlook in the developed world continues to offer global markets a semblance of hope despite the despondent post-Brexit outlook. This is also supported by expectations of more monetary easing and a steadfastly dovish Fed,” they said, noting that the release of the June Federal Open Market Committee meeting minutes helped reinforce the view that US policymakers might have paused the rate normalisation cycle.
In another report, Citigroup analysts said the global risk aversion macro index, a global measure of risk aversion across asset classes, decreased last week, signalling an improvement in risk appetite while the emerging market risk aversion index increased slightly, signalling a marginal decrease in emerging market-specific risk appetite.
Source:
courtesy of THE STAR
by Fintan Ng
If you have any stories or news that you would like to share with the global online community, please feel free to share it with us by contacting us directly at [email protected]