KUALA LUMPUR — The ringgit is at its risk premium due to local political uncertainties and a sudden retraction of Brent crude oil prices, said RHB Research Institute analyst Vincent Loo Yeong Hong.
“Oil prices which retraced slightly due to the United States (US) dollar strengthening (after the Federal Open Market Committee statement saying the US economic outlook improved) has impacted the ringgit,” he told the Malay Mail.
He said the committee’s statement revived expectations of another rate hike this year.
Brent crude oil prices have had a huge impact on the behaviour of the ringgit in the past two years.
Meanwhile, Forex Time research analyst Lukman Otunuga believes last week’s unexpected build-up, in both crude and gasoline inventories, rekindled fears over excessive supply while the returning supply from previous disruptions have sabotaged any real recovery in value.
On West Texas Intermediate prices, he remarked, “Oil is firmly bearish and could be destined to trade towards US$40, as the mixture of supply concerns and speculation that demand may be waning attracts sellers to attack. From a technical standpoint, the downside momentum is strong with prices magnetised to the US$40 target.”
On the domestic side, RHB’s Loo said the local interest rate outlook hinges on the strength of the economy in second half this year.
“If growth improves or is sustained this year, then Bank Negara Malaysia is unlikely to cut rates further. However, should growth slow more than expected then we will see another 25-basis-point cut (to 2.75%),” he added.
He said in the current low yield global environment, easing interest rates would not have a major impact on the ringgit, especially as the US is not in a very good position to hike rates.
Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew, meanwhile, pointed out that the ringgit has had a weakening bias in recent weeks.
“Lower oil prices, as well as year-on year contraction in exports are all weighing on the ringgit,” he said in a Malay Mail interview.
Sunway University Business School economics professor Yeah Kim Leng noted that while most emerging markets’ currencies, including the ringgit, have strengthened against the dollar, some of the gains have been offset by weakening commodity prices particularly crude oil.
“Selective corporate rating downgrades by international credit rating agencies may have also contributed to the poorer ringgit sentiments, compared to other currencies that have gained more from the US dollar weakness,” he said.
On Friday, it was reported the US Federal Reserve had left interest rates as is, acknowledging an improved economic performance.
However, a rate increase may still take place this year.
Policy makers had not expected a raise in rates, which is expected to hamper growth.
The improved view on the economic conditions leaves an opportunity of an increase in the benchmark fed funds rate which is currently at 0.25 to 0.5%, by December.
The ringgit retreated from Thursday’s gains last week, to open slightly lower against the US dollar on Friday morning, as investors returned to safe-haven currencies after the US Federal Reserve opted to maintain its interest rates level.
It closed Friday trade at RM4.066 to the dollar from RM4.049 at the previous day’s close, Bloomberg figures show.