KUALA LUMPUR The ringgit dipped to a five-year low yesterday, weighed down by a strengthening US dollar on stronger bond yields.
Major Asian currencies were hit when the greenback chalked a
seven-year high versus the yen, although analysts blamed the recent ringgit sell-off on the slump in oil prices.
Another round of selldown took place yesterday, affecting plantation and oil and gas stocks on Bursa Malaysia.
Brent crude oil, one of the two major benchmarks for world oil prices, saw a rebound to US$71 (RM244.40) per barrel yesterday.
The ringgit was traded mostly lower against the US dollar yesterday. It opened at 3.4285 and at 5pm, it was traded at 3.4435.
Maybank FX Research said the pause in ringgit’s decline was short-lived as the US dollar continued to climb higher yesterday.
Singapore-based Credit Suisse is bearish on the ringgit, arguing that negative terms of trade shock combined with large outflows by domestic investors would weaken the currency in an environment of slowing foreign inflows.
“Nonetheless, the break in US dollar-ringgit above 3.40 with seemingly weak central bank resistance has surprised us. We read this as a signal that the central bank is willing to accept currency weakness as an offset to the fall in oil income, and perhaps to raise export competitiveness.”
The research house has revised its forecasts higher to 3.49 and 3.53 in three and 12 months, from 3.38 and 3.42 previously.
“At the current oil price levels, we think the ringgit could depreciate past 3.55-3.60 before it represents a bigger risk to Bank Negara Malaysia’s inflation outlook.”
Analysts warned that at an average oil price of around US$70 a barrel, Malaysia’s current account surplus for next year could fall to a level less than half that of 2014.
Credit Suisse’s oil strategists see scope for oil prices to fall further in the first quarter of next year on excess supply before recovering modestly in the second half.
“Such a profile implies further near-term pressure on the ringgit.”
Lower oil prices also increase the ringgit’s vulnerability to capital outflows.
Credit Suisse warned that although the currency has responded, the worst of the fall in the oil price to date on the trade balance is yet to be felt.
“Malaysia’s fuel trade balance tends to react to falling commodity prices with a two- to three-month lag as contracts are re-priced.”
Given the oil price move, the current account surplus is likely to fall from US$2.5 billion in the third quarter to about US$2 billion in the fourth quarter.