KUALA LUMPUR: Malaysia may be taken off the US Treasury list of potential currency manipulators in a year or so, but it needs to contend with the unfavourable perception of investors in the next three to six months.
Kenanga Research said the US Treasury’s decision to include Malaysia in its “Monitoring List of Potential Currency Manipulators” came as no big surprise, but it would weigh on the ringgit in the short term.
Coupled with the uncertainty over the impact of the protracted the US-China trade negotiation as well as an increasingly dovish US Federal Reserve, the ringgit was expected to hover between 4.15 and 4.25 against US dollar in the short term.
“Though we still believe the ringgit is relatively undervalued, the challenge is for the government to restore confidence and ensure a clearer policy direction going forward.
“Nonetheless, we reckon the US Treasury decision to see the ringgit as a potential threat does not change its underlying fundamental support. Hence, we are maintaining our ringgit against US dollar year-end forecast of 4.10,” it said.
Kenanga Research said the inclusion had compounded the impact brought about by the decision to potentially exclude Malaysia from the FTSE Russell World Government Bond Index announced last month.
The decision hastens the ringgit to reach a six-month low of 4.20 after months lingering in the 4.00-4.19 range.
The local unit has depreciated by about 2.0 per cent against the US dollar since it passed the 4.10-mark on April 10.
“The much-anticipated decision came as no big surprise as the US, under Donald Trump’s presidency, is determined to exert its protectionist stance on trade.
“Furthermore, Trump has been using the foreign-exchange policy as a tool to rewrite global trade rules in the pretext of protecting US businesses and jobs in a bid to win support for his re-election in 2020.
“The US, however, spared China the currency manipulator label but it remains in the watch list. This may have been to avoid further escalation in the on-going protracted US-China trade negotiation,” it said.
In response to US Treasury’s decision, Bank Negara Malaysia stressed that it “does not practice unfair currency practices.”
Kenanga Research said although it somewhat admitted the part on intervention in the forex market, Bank Negara, however, explained that it had been in both directions over the last few years, concurring the US Treasury report, and “is limited to ensuring an orderly market and avoiding excessive volatility”.