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Ringgit up on US$, S$, may rebound on key US meeting, says analyst

The Malaysian ringgit closed slightly higher at RM3.2455 against the US dollar and RM2.5529 against the Singapore dollar today, and could strengthen further on news from the Federal Open Market Committee (FOMC) meeting today, a currency analyst said today.

The local currency slipped to historic three-year lows of RM3.2934 against the greenback and 15-year-low of RM2.5862 against the Singapore dollar yesterday on fears of capital outflows from bond transactions.

“The ringgit is poised to rebound from a three-year low as the economy’s resilience damps concern rising US Treasury yields will prompt overseas investors to dump the nation’s bonds, trading patterns show,” the analyst told The Malaysian Insider today.

The ringgit has dropped 2.7 percent since June 30 to RM3.2463 per dollar, a loss second only to India’s rupee among 23 other emerging-market currencies.

The decline pushed the ringgit beyond the limits of the Bollinger band, signaling a reversal may be imminent, data compiled by news agency, Bloomberg said today, adding that was the biggest deviation in developing markets.

Stochastic oscillators also showed the ringgit is oversold, analysts said.

The ringgit’s 5.2 percent loss this year would be its worst annual performance since a 35 percent plunge in 1997, during the Asian financial crisis. It closed at RM3.2379 to the US dollar yesterday in Kuala Lumpur, the weakest level since July 2010.

Bloomberg reported today that Morgan Stanley has predicted that Malaysia’s economic growth and current account surplus which is more than twice China’s relative to gross domestic product, will help the ringgit catch up with regional peers.

The central bank can use its US$138 billion war chest to prop up the ringgit, according to Bank of America Merrill Lynch. The GDP is forecast to grow 5 percent this year, after a 5.6 percent gain in 2012, the median estimate in a Bloomberg survey of 21 analysts shows.

Fitch Ratings lowered its outlook for Malaysia’s A- credit rating to negative from stable yesterday, citing worsening prospects for cutting government debt levels. The ringgit could underperform as US$2.9 billion of sovereign notes mature today, raising the prospect of capital outflows, Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong, wrote in a research note.

The currency slid this month on concern global investors, who owned 33 percent of Malaysian government bonds in May, the highest proportion in Southeast Asia, will pull funds out as the U.S. outlines plans to rein in monetary stimulus. The Federal Reserve will conclude a two-day policy meeting today in Washington  that may shed light on the timing of such a move.

BNP Paribas SA predicts rising debt levels will trigger a bond and currency sell off as Prime Minister Datuk Seri Najib Razak presses ahead with a 10-year US$444 billion spending program aimed at lifting the nation to developed status by 2020.

The slowdown in China ,Malaysia’s second-biggest export market, is also weighing on the country’s assets, according to the Paris-based lender.

Malaysia’s debt-to-GDP ratio of 53.5 percent is higher than the 25 percent in Indonesia, 51 percent in the Phillipines and 43 percent in Thailand, data compiled by Bloomberg showed. It is also approaching the government’s 55 percent.

“With China slowing and Fed tapering expected to impact inflows negatively, this will amplify worries over debt sustainability,” Singapore-based BNP analysts Yii Hui Wong and Mirza Baig wrote in a July 29 research note. They cut their year-end forecast for the ringgit to RM3.25 per dollar from RM3.15.

While Malaysia’s current-account surplus will narrow to 6 percent of GDP this year, from 6.1 percent in 2012 and 12 percent in 2011, it is higher than the average 2.8 percent in Asian countries and 2.4 percent for China, Bloomberg surveys show.

Malaysia’s “fundamentals of a current-account surplus and sustained growth should warrant a correction in the recent weakness in the ringgit,” according to a July 25 report from Morgan Stanley analysts.

Bank of America strategists including Christy Tan recommended their clients use options to buy the ringgit, saying the central bank will sell foreign reserves to shore up the currency should the decline worsen.

“We believe that Bank Negara Malaysia is well prepared to defend against a ringgit selloff event,” Tan wrote in a note to clients on July 22.

“In the event of a return in appetite for regional bonds, the ringgit is well positioned to outperform in the region,” Bloomberg reported today. - July 31, 2013.

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