Ringgit tumbles to lowest level since January
The Edge Daily (15/5/08): The Malaysian ringgit tumbled to the lowest level since Jan 24 this year closing at RM3.26 against the greenback yesterday.
According to analysts, strong oil prices, which are testing the US$125 (RM400) per barrel mark, generated demand for the US dollar, which led to most currencies taking a fall against the greenback. The US dollar was also given a boost by better retail sales data for April, from the US economy. This is an indication that the US will not need to slash its key interest rates further.
Other Asian currencies also weaken against the US dollar. However, among Asian currencies, the ringgit was the worst hit, as the unstable political climate added to the woes.
Political observers said that the recent statements by members of parliament (MPs) from Sabah increased the risk of political instability in the country. Over the last two weeks, three MPs from Sabah have expressed their dissatisfaction over the treatment from the federal government. The grouses range from inadequate oil subsidies to insufficient positions in the Cabinet.
The growing voice of MPs in Sabah has lent credence to speculation that some of them could cross over to the opposition Pakatan Rakyat which is made up of DAP, PAS and Parti Keadilan Rakyat (PKR).
In tandem with the weakening ringgit, yields on short-term papers also increased. Five-year benchmark MGS rose by 70 basis points (bps) to 3.54% since May 5. The yields on three-year MGS meanwhile has climbed from 3.44% to 3.5% since last Monday, indicating a selldown in debt papers.
Much of the weakening in the ringgit was also a result of China raising its reserve requirement ratio (RRR) by 50 bps to 16.5%, its fourth hike this year to stem off inflation. A combination of high-growth economy fuelled by foreign investments has contributed to a higher inflation rate in China.
According to a report by HwangDBS, China may want to slow the yuan’s pace of appreciation because the many factors that hastened its appreciation in 2006 and 2007 were no longer compelling.
“First, the trade surplus is narrower in the first four months of this year compared to ballooning surpluses in the past two years. Second, the stock market is still struggling to recover from its sharp fall, unlike the bull run in 2006 and 2007.
“Thirdly, Asian currencies are no longer appreciating across-the-board against the US dollar like they did in the past two years. Fourthly, US rates are no longer the highest amongst the G3 currencies, which makes managing the yuan appreciation pace harder. Fifthly, there is now a need to balance the yuan appreciation against the euro, not just against the US dollar,” HwangDBS added.
Many opined that the ringgit, to a certain extent, tracked the Yuan, as both currencies were unpegged from the greenback at the same time.
Dealers, however, said that this depreciation of the ringgit may be a short-lived and expected it to trade at a range of between RM3.15 and RM3.20 to the US dollar once the political climate stabilises. (Jose Barrock)
According to analysts, strong oil prices, which are testing the US$125 (RM400) per barrel mark, generated demand for the US dollar, which led to most currencies taking a fall against the greenback. The US dollar was also given a boost by better retail sales data for April, from the US economy. This is an indication that the US will not need to slash its key interest rates further.
Other Asian currencies also weaken against the US dollar. However, among Asian currencies, the ringgit was the worst hit, as the unstable political climate added to the woes.
Political observers said that the recent statements by members of parliament (MPs) from Sabah increased the risk of political instability in the country. Over the last two weeks, three MPs from Sabah have expressed their dissatisfaction over the treatment from the federal government. The grouses range from inadequate oil subsidies to insufficient positions in the Cabinet.
The growing voice of MPs in Sabah has lent credence to speculation that some of them could cross over to the opposition Pakatan Rakyat which is made up of DAP, PAS and Parti Keadilan Rakyat (PKR).
In tandem with the weakening ringgit, yields on short-term papers also increased. Five-year benchmark MGS rose by 70 basis points (bps) to 3.54% since May 5. The yields on three-year MGS meanwhile has climbed from 3.44% to 3.5% since last Monday, indicating a selldown in debt papers.
Much of the weakening in the ringgit was also a result of China raising its reserve requirement ratio (RRR) by 50 bps to 16.5%, its fourth hike this year to stem off inflation. A combination of high-growth economy fuelled by foreign investments has contributed to a higher inflation rate in China.
According to a report by HwangDBS, China may want to slow the yuan’s pace of appreciation because the many factors that hastened its appreciation in 2006 and 2007 were no longer compelling.
“First, the trade surplus is narrower in the first four months of this year compared to ballooning surpluses in the past two years. Second, the stock market is still struggling to recover from its sharp fall, unlike the bull run in 2006 and 2007.
“Thirdly, Asian currencies are no longer appreciating across-the-board against the US dollar like they did in the past two years. Fourthly, US rates are no longer the highest amongst the G3 currencies, which makes managing the yuan appreciation pace harder. Fifthly, there is now a need to balance the yuan appreciation against the euro, not just against the US dollar,” HwangDBS added.
Many opined that the ringgit, to a certain extent, tracked the Yuan, as both currencies were unpegged from the greenback at the same time.
Dealers, however, said that this depreciation of the ringgit may be a short-lived and expected it to trade at a range of between RM3.15 and RM3.20 to the US dollar once the political climate stabilises. (Jose Barrock)
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