After months of being in a currency quagmire, due to the 1MDB scandal and also the sliding price of crude oil affecting Asia’s only net oil exporter, the Ringgit has now become the region’s “best performing currency” overnight.
However, analyst said it still remains the least attractive.
According to Bloomberg News, the Malaysian currency has climbed by 9.7% this quarter, the most in 43 years.
This can be due to several factors such as tax increases, spending cuts, oil recovering and the agreement by 1MDB to sell energy assets and to repay RM6 billion in debts in weeks.
Earlier forecasts predicted that the Ringgit would weaken by 8.4% this year, the biggest dive in the region, even going beyond the 17-year low in September (RM4.48 to US$1), when the Swiss Attorney-General said that the US$4 billion may be missing from 1MDB.
“The Ringgit is going to be one of the out performers in the region in 2016,” said Divya Devesh, the Singapore-based foreign-exchange strategist for Asia at Standard Chartered Plc.
“We are looking for a good rebound in oil prices. The market is still short on Ringgit. So, we might see continued covering of positions, which should also be supportive.”
Ringgit was forecasted by Macquarie Bank Ltd, the most accurate in Bloomberg’s ranking for last year, to trade at RM3.90 to US$1 by June 30. However, this projection has more to do with the US dollar potential weakening rather than Malaysia’s fundamentals, said Nizam Idris, Macquarie’s Singapore head of foreign exchange and fixed income strategy.
The gradual increase in interest rates by the US Federal Reserve has driven emerging market currencies to perform their best in 18 years. The Ringgit reached 3.91 to US$1 on Thursday, the highest in eight months.
Even Standard Chartered, the most bullish in the Bloomberg survey of 27 forecasts, has upgraded its estimate of the second quarter made on March 22, from RM4.30 to US$1 to RM4 per US$1. This upgrade was due to the projected Brent crude to reach US$60 per barrel by end of the year, as well as the Federal Reserve keeping its interest rates for the rest of the year.
The Royal Bank of Canada was less optimistic in its forecast of RM4.60 to US$1 by June 30, which is even worse than the low reached in September, when the Swiss froze assets linked to 1MDB.
The Ringgit’s sustainability relies largely on the rally in oil, gas and petrochemicals, palm oil and electronics, the bulk of shipments abroad, besides concerns on US interest rates and scandals. The country’s exports grew at less than half the 10-year average last year, said Bloomberg News.
“Broadly, we feel that oil prices have bottomed and that is the key indicator,” said Mirza Baig, the Singapore-based head of Asia Pacific currency and interest-rate strategy at BNP Paribas SA. He sees the Ringgit continuing to trade around RM4 per US$1.
“The other positive factor is the resumption of inflows to emerging markets.”
Malaysian exports could be more resilient than we thought initially, said Trang Thuy Le, a Hong Kong-based macro strategist at Credit Suisse Group AG, which raised its three-month Ringgit forecast in March to RM4 per USD1 from 4.30. “I would think a lot of the stability in the political situation has already been priced in.”
“Given the dovish tone of the Fed, we think that the dollar will likely continue to drift in the coming months and, because of the energy prices.”
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