Ringgit breaches RM4 mark as yuan devaluation adds to Malaysia’s woes

The ringgit is spreading thinner after breaching the RM4 mark against the US dollar, the lowest level since September 1998. – The Malaysian Insider pic, August 12, 2015.The Chinese government's surprise move to devalue the yuan coupled with domestic headwinds sent the ringgit to a low of 4.0060 to a US dollar in early trade.

This was the weakest level recorded since September 1998, as compared with the strongest point of the ringgit in July 27, 2011 at 2.9390 against the greenback.

On Tuesday, the ringgit opened at 3.9355 against the US dollar and closed at 3.9735. It opened at 3.9735 today.

At the point of writing, the ringgit weakened against the greenback to trade at 3.9950. It had earlier fallen to a low of 4.0060.

The ringgit had fallen to an all-time  low of 4.7125 on January 9, 1998 against the greenback before Bank Negara Malaysia (BNM) pegged the ringgit to the US dollar at 3.80.

In view of this, Ambank foreign exchange research said in a currency note on Wednesday that it expects the ringgit to trade in the range of 3.955 to 4.000 against the US dollar today.

"If the resistance of 4.000 is breached, we expect the ringgit to trade higher to 4.008. If the support of 3.955 is broken, the next support is at 3.944," it added.

Meanwhile, Maybank GM Research said the US dollar continued to push to all-time highs against the ringgit and an intra-day high of 4.0060 was printed this morning.

"This was due to another US dollar to Chinese yuan fixing (much higher by more than 1,000 pips) this morning," it added.

According to its research note today, the firm reiterated that the pair remains bullish bias.

"Weekly momentum and stochastics remain bullish bias. Ringgit spot last sighted at 3.9950," it said.

In a note to clients today, Hong Leong Investment Bank Research (HLIB Research) said the China Central Bank's devaluation of the yuan was unexpected.

"We had in our second half 2015 (2H15) Economic Report mentioned that China is the major source of global downside risk. With its status as a large buyer of global commodities as well as importer of both goods and commercial services, a protracted slowdown of the Chinese economy will have massive implications, particularly on its trading partners," it said.

HLIB Research opined that China's yuan devaluation is short-term negative for Malaysia.

It said the ringgit continues to be eroded due to ongoing domestic issues.

"We understand that there is now rampant hoarding of foreign currencies especially by exporters. Meanwhile, foreign currency deposits have gained further popularity. All these have further weakened the ringgit and drain reserves from BNM," it said.

The firm has widened its ringgit forecast range to RM3.55 to 4.20 to a US dollar.

"We reiterate our view that BNM will continue to leave its overnight policy rate (OPR) unchanged at 3.25% in the 2H15," it added.

Apart from the US dollar, the ringgit was traded mixed against other major currencies.

At the time of writing, pound sterling appreciated 0.18% against the ringgit to quote at 6.2202 while the euro also advanced 1.03% to trade at 4.4154.

However, the ringgit strengthened against the Australia dollar to quote at 2.8999. The local note also appreciated against the Singapore dollar to quote at 2.8293. – The Edge Markets