Ringgit to be weak for next few months

Due to the price decline of Brent crude, majority economists and analysts foresee that Ringgit will be remain weak for new few months.

Source: Ringgit Falls to Five-Year Low as Oil Slump Cuts Revenue Outlook 

Malaysia’s ringgit fell to the weakest level in almost five years on concern a slide in oil will make it harder for the government to achieve its fiscal deficit target.

The currency depreciated 0.4 percent to 3.4400 per dollar as of 9:57 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. It earlier dropped to 3.4455, the lowest since February 2010. The price of Brent crude has declined 38 percent from its June high, cutting revenue for oil exporter Malaysia.

Credit Suisse Group AG lowered its three-month ringgit forecast today to 3.49 per dollar from 3.38, and said the central bank may be willing to accept currency weakness to boost exports and offset the impact on the economy from the drop in oil. Prime Minister Najib Razak is seeking to cut the budget deficit to 3 percent of gross domestic product next year from 3.5 percent.

Ringgit weakness is a “reflection of the absolute collapse in oil,” said Michael Every, Hong Kong-based head of Asia Pacific financial markets research at Rabobank International. “The government is already under fiscal pressure.”

Brent dropped below $70 a barrel last week for the first time since 2010 after OPEC’s decision not to cut production to shore up prices. The contracts traded at $71.17 today after falling 2.8 percent overnight.

Malaysia will be the sole loser among Asia’s emerging markets from the decline in crude and the nation may miss its 2015 fiscal deficit target, according to Bank of America Merrill Lynch. A 10 percent drop in prices will reduce the nation’s growth by 20 basis points, economists including Singapore-based Chua Hak Bin wrote in a Dec. 1 report.

One-month implied volatility, a measure of the ringgit’s risk, rose 29 basis points to 8.63 percent, data compiled by Bloomberg show. The gauge has climbed 130 basis points, or 1.3 percentage points, so far this week.

Malaysia’s government bonds were little changed, with the yield on 10-year notes at 3.89 percent, data compiled by Bloomberg show.

Source: ‘Ringgit to be weak for few months’ 

KUALA LUMPUR: The ringgit will experience fluctuations over the next few months until the global crude oil prices stabilise, said research houses.

BIMB Securities economist Imran Nurginias Ibrahim expects the weakness to continue for the next two to three months.

“We’re looking at RM3.45 to the US dollar in the near term with support at RM3.40 to RM3.49.”

The ringgit closed at RM3.4260 against the US dollar yesterday, compared with RM3.4320 on Monday.

The beating on Monday was due to worries over the impact of the soft oil prices, Petroliam Nasional Bhd’s (Petronas) decision to cut capital expenditure and its impact on the country’s current account and expenditure, said Imran.

The research house has projected the oil to trade at US$75 (RM256.5) per barrel in the first half of next year.

With the United States Federal Reserve poised to start its interest rate hiking cycle, the greenback will only strengthen further, placing Asian currencies at a disadvantage over the next few years, said another research house.

Hong Leong Investment Bank expects to see further depreciation in the ringgit.

In its research note, it said the technical outlook for the ringgit remains weak as all indicators are pointing to strong negative pressure.

“Reading from all indicators showed that upside momentum is still picking up but at slower velocity.”

It expects the ringgit to test a high of RM3.45 against the US dollar, with the next resistance levels at RM3.52 and RM3.60.

UBS Investment Bank, in its latest economic outlook report, said if oil were to fall below US$73 per barrel, the “offset to lower oil-related revenues would disappear for Malaysia, placing pressure on the fiscal target”.

Petronas’ ability to adjust its dividend payout ratio could mitigate the impact on the Federal Government’s accounts.

Disappointing corporate earnings last month as well as the weak market sentiment mean it is a challenge to meet the FTSE Bursa Malaysia KLCI target this year, according to Affin Hwang Capital.

A weak ringgit compounds the difficulty.

Among the key risks are that consumption will be affected by higher inflation and the government’s inability to rein in its fiscal deficit.

Concerns over lower oil tax revenues, which may lead to a weak fiscal deficit next year, had led the ringgit to fall versus the US dollar by 1.5 per cent on Monday, which followed a three per cent drop in the previous trading day.

“On the positive side, lower oil prices are generally good for economic growth,” it said.

Affin Hwang listed the main beneficiaries of a weak ringgit as the rubber glove manufacturers (especially Top Glove and Supermax).

In the oil and gas sector, Petronas Chemicals Bhd, SapuraKencana Petroleum Bhd and Bumi Armada Bhd stand to benefit from a stronger US dollar due to their US dollar-denominated businesses, although Perdana Petroleum Bhd and Alam Maritim Resources Bhd, in contrast, are expected to suffer because they earn ringgit revenues against US dollar costs.

On the back of US dollar borrowings, IOI Corp Bhd and Genting Plantations Bhd (in the plantation sector) potentially have market-to-market forex losses.