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Saturday, December 6, 2014

How LOW will the ringgit go?

How LOW will the ringgit go?
In the last six months, the ringgit has been the second worst-performing currency in Asia, after the yen.
Two weeks ago, it breached the 3.400 level against the US dollar and since then, it has been hovering within a hair’s breadth of 3.5000. On December 5, it touched 3.4757 before closing at 3.4713.
The Edge Weekly in its latest edition analyses how low the ringgit would go and said that from its year-high of 3.1463 recorded on August 27, the ringgit has lost 10.3% of its value against the greenback.
The magazine said that last week alone, the ringgit declined 2.6%.
It said while the yen’s fall was a deliberate policy move by the Bank of Japan to devalue its currency, the ringgit is a victim of a convergence of several factors on both the external and domestic fronts.
“The question is, does the currency’s weakness reflect Malaysia’s economic fundamentals or is it a cyclical and temporary trend? Market observers and economists think its weakness will continue into next year.
“What sparked the sharp depreciation of the local currency was the drop in oil prices. Malaysia is the only economy in the region that will be negatively impacted by low oil prices as it is a net energy exporter while the rest are net importers,” said The Edge.
Citing a recent Barclays Research note, it said: “Currencies of net energy exporters will clearly suffer from lower oil prices... In the region, the ringgit has the highest correlation to crude oil price movements. Correlation statistics also show that crude oil price is currently the most important driver of ringgit price movements, among others (for example, the US Dollar Index, the FBM KLCI, palm oil prices and ringgit-US yield differentials).
“The overhang of foreign positioning in local market debt, particularly in short-term BNM bills and government T-bills, further adds to the ringgit’s vulnerability.” – The Edge Weekly

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