RINGGIT RALLY MAY CONTINUE ON IMPROVED SENTIMENT

Optimism due to appetite for emerging market assets, improving economic conditions, says Forex-Time analyst

THE ringgit has not only found support in the form of an increased appetite for emerging market assets, but also through Malaysia’s improving economic conditions.

Cyprus-based ForexTime (FXTM) research analyst Lukman Otunuga said this after observing the currency’s performance opening higher for the third consecutive day, lifted by interest in emerging market assets.

“With political uncertainty and low inflation fears in the United States weighing heavily on the greenback, investors may be attracted to the international bond markets, which could boost buying sentiment towards the ringgit,” he told NST Business via email yesterday.

He said recent reports of Malaysia’s inflation dropping to 3.6 per cent last month point to price stability; this is likely to add to the improving sentiment towards Malaysia and ultimately benefit the ringgit further.

“When also factoring in how the World Bank revised Malaysia’s 2017 growth upwards to 4.9 per cent, the currency may actually be undervalued, with further upside on the cards”.

To a question if sentiment was expected to continue to drive the ringgit’s movement for the coming weeks, Lukman said it could appreciate further in the coming weeks, amid the improving sentiment towards Malaysia’s economy.

He added that while some profit-taking could occur following the ringgit’s appreciation, rising oil prices may support the local currency further consequently capping downside losses.

On whether short-term rates are expected to remain stable with Bank Negara Malaysia’s intervention to mop out excess liquidity from the financial system, Lukman said signs of price stability in June have reduced some inflationary pressures. Therefore, they may not be seen as a severe risk that would have pressured Bank Negara to potentially lift rates higher in the short term.

As the ringgit continues to recover amid rising confidence and improving macro-fundamentals, inflationary pressure may continue to ease further.

Lukman said if the growth trajectory for the Malaysian economy continues to surprise to the upside this year, the central bank may signal for higher rates in the longer term to support growth further.