KUALA LUMPUR: The ringgit will continue to face volatility as the date draws nearer towards the US Federal Reserve Fund’s expected interest rate normalisation in September, said forex analysts.
The ringgit fell against the US dollar again yesterday after enjoying some short gains after Fitch Ratings released a positive outlook report on Malaysia.
Softer crude oil prices and the upcoming US jobs data for June caused the ringgit and the other regional currencies to weaken yesterday.
The ringgit was quoted at 3.7752 at 5 pm yesterday compared to 3.7485 on Wednesday.
Maybank FX said the downside to the volatility risks is mitigated by Fitch Ratings maintaining Malaysia’s “A-” sovereign credit rating and upgrading the rating outlook to “stable” from “negative”.
The surprise decision by Fitch eliminates the risk of selloff by foreign investors holding nearly half of Malaysian Government Securities (MGS).
The research house expects the ringgit to trade at 3.77 level at the end of the second quarter and 3.78 at year-end.
AmBank Group sees near term strength in the ringgit to continue especially against Singapore dollar.
“We however argue strengthening of the ringgit to be sentiment driven and short term in nature. “Year-to-date,the ringgit has been the worst performing currency among its regional peers, it said.
“We are entering a crucial period for US dollar, aided by improving US data flows and expectations of when the Fed FOMC will ever raise rates as market expectations of a rate hikes in September is likely to harden, of which the ringgit, like other regional currencies, to be caught in changing external cross-currents.”
Analysts Wong Chee Seng and Tan Swee Wei, in a report, said net foreign selling has amounted to RM8.7 billion, more than the entire net sell position for 2014 of RM6.6 billion respectively.
In June alone, foreign institutions were net sellers of Malaysian equity amounting to RM3.1 billion- the largest monthly net sell position in 17 months despite net buying by domestic institutions of RM3.4 billion, the largest monthly net buy position in 22 months.
They expect the currency volatility to ease in the third quarter as there will be lesser pressure points compared to start of the year.
In January 2015, Moody’s affirmed the government bond and issuer ratings of the Government of Malaysia at A3 with positive outlook.
This was followed by Standard and Poor’s which affirmed its "A-/A-2" foreign currency and 'A/A-1' local currency sovereign credit ratings with a stable outlook.
“All these reactions are suggesting the extent of short positions being unwind as it reflects the realignment of trading positions as most market players were factoring a rating downgrade then.
“Along with it, extreme expectations on Ringgit Malaysia, at its height of pessimism, pointing towards 4.00-4.50 against US dollar, will be deeply buried,” they wrote.