PETALING JAYA: The ringgit reached a six-month high against the US dollar, extending recent gains following Malaysia’s faster-than-expected gross domestic product (GDP) expansion in the first quarter.
The higher price of crude oil is also helping to boost sentiment on the local unit.
The ringgit cracked the 4.30-level against the US dollar for the first time since December, as the greenback weakened against major world currencies.
Having appreciated 0.23% against the US dollar, the local note finished the day at 4.2945 against the greenback, off an intra-day low of 4.2935.
Dealers noted that the ringgit’s strength was also attributable to growing investor optimism that crude oil prices would remain firm in the medium term, and that the growth prospects of the Malaysian economy would continue to improve.
According to media reports, Iraq will support a joint proposal by Saudi Arabia and Russia to extend oil production cuts for another nine months up to March 2018, clearing the path for a deal when the Organisation of the Petroleum Exporting Countries or Opec meets in Vienna later this week.
“The extension of a production cut would support crude oil prices, with which the ringgit continues to have significant correlation,” a dealer said. Crude oil prices on the international benchmark Brent eased 1.1% yesterday to US$53.27 per barrel.
Meanwhile, the US dollar index – a gauge of the greenback’s performance against a basket of major currencies such as the euro, yen and pound sterling – fell to 96.908 as at 5pm yesterday from 96.984 a day earlier.
Separately, private-sector economists recently upgraded their 2017 growth forecast for Malaysia to arosund 4.8%-5.1% from their earlier forecast of around 4.1%-4.4%, following a strong showing in the first three months of the year.
Malaysia’s GDP grew at its fastest rate in two years at 5.6% in the first quarter of 2017. Last year, the country’s GDP expanded 4.2%.
Standard Chartered Bank (StanChart) in a recent note pointed out that ringgit-supportive factors – such as exceptionally attractive valuations, underweight foreign investor positioning and improving external balances – have been in place for some time now.
“The key hurdle, however, has been weak sentiment, which now seems to be improving,” the international financial institution said.
It pointed out that foreign investors have been net buyers of Malaysian equities for four straight months, with net inflows of US$2.2bil year-to-date, and more importantly for the ringgit, foreign investors also turned net buyers of Malaysian debt in April.
“We think this improved sentiment and flow picture has been as much a result of domestic factors, that is allowing foreign investors to hedge up to 100% of ringgit exposure without documentary evidence, as of global factors, that is continued inflows to emerging markets leading to stretched valuations elsewhere,” StanChart explained.
“Given the scale of portfolio outflows in the past four years, there is significant room to catch up, which should support further ringgit gains,” it added.
StanChart said it forecasts a return to “fair value” of around 4.10 for the US dollar-to-ringgit exchange rate in the first half of 2018, although the possibility of this happening sooner has increased.
MIDF Research in its report early this month said there was room for the ringgit to further strengthen to RM4.20 per US dollar by the end of next month.
Meanwhile, the ringgit performed mixed against most major currencies.
It strengthened to 3.0960 from 3.1055 against the Singapore dollar; 3.8612 from 3.8671 against the Japanese yen; and 5.5776 from 5.5928 against the British pound yesterday. Against the euro, the ringgit weakened to 4.8309 from 4.8146.
Source : http://www.thestar.com.my/business/business-news/2017/05/24/ringgit-at-6month-high/#L1jTwzlqIVTfjBw7.99