Ringgit strengthens after knee-jerk reaction

KUALA LUMPUR: The ringgit bounced back from an early slump yesterday to end little changed against the US dollar.

The local currency was last traded at 3.9505 against the US dollar. Year-to-date, the ringgit has appreciate 4% against the greenback.

“The ringgit had a great opening today with the market being comfortable with the smooth transition of the government,” Oanda APAC head of trading Stephen Innes said.

In the morning session, it fell to a low of 3.9875 and rose to a high of 3.9425. It was weakest at 4.08 against the greenback last Thursday.

He said the depreciation of ringgit last week was mainly a knee-jerk reaction post-elections.

Innes, who is based in Singapore, attributed the depreciation to panic selling.

Following the historic outcome of the general election, the ringgit was clearly rattled on Thursday and Friday, weakening beyond the 4.00 mark against the US dollar based on the non-deliverable forwards.

Nonetheless, he said there would be some unwinding of pre-election hedge and stop-loss selling from speculators who predicted the ringgit to weaken in the short term.

Another currency strategist said although the ringgit has stabilised, he expected it to trade around 4.00 in the near term despite some improvement in market sentiment.

The strategist added that the appointment of Lim Guan Eng as Finance Minister as well as the formation of the Team of Eminent Persons to provide advice to the new government were well received.

Meanwhile, Bloomberg reported that one reason Malaysian assets aren’t getting hammered as badly as some analysts had expected may be that Tun Dr Mahathir Mohamad’s shock election victory has coincided with a jump in oil prices to their highest level since late 2014.

Crude has rallied around 9% this quarter in the run-up and aftermath to Malaysia’s historic polls last Wednesday, providing a boost to state coffers. The higher crude oil prices will also cushion the impact from some of the new government’s policies that were described as credit-negative by Moody’s Investors Service and Fitch Ratings.

The fact that the ringgit, which often moves in tandem with oil prices, decoupled from crude in the weeks preceding the elections is also helping to prevent a more severe selloff, said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd in Singapore.