CRUDE OIL POISED TO HIT US$70 A BARREL
Economists expect local currency to touch 3.80 level against US dollar in near term
THE ringgit hit an 18month high yesterday, with economists backing the local currency to touch 3.80 against the US dollar in the near term.
The ringgit was significantly higher against the greenback in early trade, touching a level not seen since July 2016.
At 9.16am, it stood at 3.9750/9780 from 3.9850/9900 at the close on Thursday, benefiting from better-than-expected manufacturing data and strong crude oil prices.
At 6pm, the local note finished stronger at 3.9700/9730, gaining 150 basis points from Thursday’s close.
Foreign exchange specialists feel a likely factor behind the ringgit’s appreciation could be the growing confidence in Malaysia’s economy.
“The Malaysian economy defied all market expectations last year by growing above five per cent over the last three quarters, and this continues to stimulate investor attraction for the local currency,” FXTM research analyst Lukman Otunuga said told NST Business.
Otunuga said external factors such as the US dollar’s weakness have also offered support to the ringgit.
“It should be kept in mind that the outlook for the US dollar still remains shaky amid low inflation concerns in the US.
“The greenback is also at threat of experiencing heavy losses if the impact of Trump’s US$1.5 trillion (RM5.95 trillion) tax overhaul fails to meet market expectations,” he said.
Otunuga said a combination of sustained dollar weakness and ringgit strength could drag the pair lower next week, with 3.950 and 3.920 acting as near-term targets.
“Taking a look at the technical picture, the dollar-ringgit remains heavily bearish on the daily charts with bears in control below the 4.014 lower high. The 4.000 level could act as a significant psychological level which could pave a way to further downside,” he said.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said higher crude oil prices may have helped improve the ringgit to a stronger level.
Brent crude touched a new high at US$70 a barrel briefly before going back to US$69 yesterday.
“Such a development is positive for government revenue as well as players in the oil and gas industry. We noticed that the actively-traded stocks in Bursa Malaysia are largely dominated by the oil and gas players.
“So it is a form of vote of confidence for the Malaysian economy. Additionally, the recent announcement by Bank of Japan to reduce asset purchases is also a sign that the economy is on firmer footing,” he said.
Afzanizam said with the current level breaching its previous support level of RM3.98, the next support level would RM3.82.
“Perhaps, the ringgit is moving towards such direction. However, speed bumps like profit-taking and changes in views on the US rate hike could easily shift the ringgit momentum,” he added.