Ringgit nears low again as Malaysia forex reserves dip
KUCHING: The ringgit stayed near a17-year low yesterday after news that foreign exchange reserves fell below the US$100 billion threshold raised concerns over the currency’s ability to withstand further headwinds and low commodity prices.
At 5 pm, the ringgit was quoted at 3.9270/9300 against the US dollar from 3.9220/9250 on Friday.
The currency on Friday hit 3.9280, its weakest since Sept. 2 1998, the day before the government pegged it at 3.8000 per dollar to put a floor under the currency during the Asian financial crisis. Malaysia lifted the peg in 2005.
As at end-July, reserves dipped to US$96.7 billion due to lower trade surplus while Bank Negara Malaysia (BNM) intervened to ensure an orderly fluctuation of the Ringgit.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) said despite the 10.1 per cent on year improvement in net trades during second quarter 2015 (2Q15), cumulative trade balance fell by RM3.1 billion as at end-June 2015. Based on the current reserves level, it is able to finance 7.6 months of retained imports and 1.1 times short-term external debt.
“The ringgit is likely to remain weak owing to ongoing uncertainties coupled with the anticipation of higher interest rate in the US. Also, the ringgit deteriorated
The ringgit is likely to remain weak owing to ongoing uncertainties coupled with the anticipation of higher interest rate in the US. Also, the ringgit deteriorated further during the irst week of August and is weaker against its regional counterparts.
further during the first week of August and is weaker against its regional counterparts,” it said.
“Going forth, BNM is likely to mediate in the foreign exchange (forex) market on the back of the weaker- than- expected ringgit. As such, the weak currency will continue to exert downward pressure on forex reserves, which had deteriorated sharply in 1H15.
“Despite the accumulation of trade surplus in June, the pace of exports growth and sustainability of strong export orders will rely extensively on global demand and the rebound in advanced economies,” it added.
MIDF Research
The US dollar has been stronger vis-à-vis regional currencies as at year to date. Nonetheless, there has been an improvement for the Aussie Dollar, the Rupiah, and the Won during the first week of August.
On a year to date basis, the ringgit traded at an average of 3.67 per dollar. That compares to 2014 when the ringgit traded at an average of 3.27 per Dollar and ended the year at 3.50 per dollar. Meanwhile, the US Dollar Index closed at 1,212.07 points on Friday.
According to the FOMC’s quarterly Summary of Economic Projections in June 2015, the Fed’s median estimates for interest rate at the end of 2015 and 2016 are 0.625 per cent and 1.625 per cent, respectively.
Hence, MIDF Research said the Fed is likely to initiate the first interest rate hike during one of the upcoming monetary policy meeting in 2015.
“The Fed has held its target for the fed funds rate at virtually zero since December 2008 to bolster growth. Now, investors are more convinced of a September rate hike based on a survey by Bloomberg.
“Last Wednesday, consensus survey showed that the probability of a rate increase in September was 52 per cent – up from 38 per cent two days earlier. Key indicators, including the recent report on the US services sector, showed that the economy has gathered traction.:
Steady job gains in July spur confidence that the Fed could raise rates in September 2015. Mostly, non-farm payrolls had increased by at least 200,000 per month since March 2014, except for March 2015.
Data released last Friday showed that the non-farm payrolls in the US advanced by 215,000 last month, compared to the increase of 231,000 in June.
Thus, unemployment rate remained unchanged at 5.3 per cent in July, which is not far above the Fed’s long-term target of a 5.2 per cent range.