For the first-half, the ringgit was the biggest loser in emerging Asia, losing 5.8% weighed by capital outflows

Malaysian ringgit was set to log a near-6% decline in the first-half of 2023, leading losses among emerging Asian currencies, while equities in Malaysia and Thailand were the biggest losers in a mixed market.

On Friday, most Asian currencies recovered losses from earlier in the day, with the Philippine peso and Thai baht leading gains with a 0.4% appreciation each.

For the first-half, the ringgit was the biggest loser in emerging Asia, losing 5.8% weighed by capital outflows. It was last trading at 4.670 per dollar, hovering close to a near eight-month low.

“Malaysian ringgit has been an underperformer in Asia given sustained foreign equity outflows. That said, a pick-up in growth could turn around sentiment, and we could see USDMYR consolidating around 4.60-4.70 levels in 2H 2023,” Wei Liang Chang, a macro strategist at DBS Bank said.

Equities in Malaysia were set to lose 7.7% for the period, and were among the worst performers in the region.

Next week, the Bank Negara Malaysia will meet to decide on its monetary policy. Analysts at Barclays expect the central bank to leave its benchmark rate unchanged.

The Thai baht is down nearly 3% this year and is currently lingering around a seven-month low. It remains under pressure as Southeast Asia’s second-largest economy faces an uncertain path to selecting a new prime minister.

Shares in Bangkok were down 1.6% on Friday, and were set to log a near-10% decline for the first half, becoming the worst-performing shares in the region.

Meanwhile, the Indonesian rupiah emerged as the top performer in the region during the first-half, appreciating 3.8%.

Analysts at Maybank expect the rupiah to be pressured by the U.S. Federal Reserve’s continued hawkish stance, although they don’t expect it to fall below 15,230 per dollar.

In the U.S., data showed an unexpected weekly decline in the number of Americans filing new claims for unemployment benefits, and GDP growing, fuelling bets that the Fed will be forced to go for another round of rate hikes.

The “key reason (for Asian currencies’ softness against the dollar) is that Fed Chair Powell has further raised his hawkish rhetoric, signalling at least two more rate hikes,” Irene Cheung, senior Asia strategist at ANZ said.

Meanwhile, the Chinese yuan eased to 7.2615 per dollar on Friday, its weakest since Nov. 10. The yuan was set to end the first-half nearly 5% weaker.

Elsewhere, the Russian rouble also lost as much as 1.9% on Friday to hit its lowest level since March 29, 2022, while Turkish lira was trading 0.14% lower.

The International Monetary Fund (IMF) reached a staff-level pact with Pakistan on a $3 billion stand-by arrangement, a decision long awaited by the South Asian nation which is teetering on the brink of default.

Equities in emerging Asia were mixed on Friday, with markets in Thailand gaining 1.5%, while China and India up 0.7%. For the first-half, equities in Seoul were set to show a gain of 14.6%, while those in Taiwan were up almost 20%.

Source : Zawya

Economists: Ringgit may weaken further in Q3

The ringgit may weaken further against the US dollar to as steep as 4.7500 by the third quarter of 2023, bogged down by higher global interest rates, a risk-off environment and sluggish growth in China, economists warn.

They said the lack of a clear and comprehensive economic strategy from the government would likely further weaken the local currency.

The ringgit is approaching historic lows at the moment after a recent gain following Bank Negara Malaysia’s decision to raise its overnight policy rate (OPR) on May 3.

The move initially helped the ringgit gain 0.3 per cent against the dollar, but the positive effect was shortlived as two weeks later, it lost more than one per cent and hit a six-month low of 4.6280 in early trade last Friday.

“Externally, China is the main trading partner of Malaysia and the recent bad news from China is indeed a source of concern for Malaysia. The weakness of China particularly, which had to be expected because of the suicidal lockdown policies, will negatively weigh on the ringgit,” Ferlito said.

Bank Muamalat Malaysia Bhd chief economist and head of social finance Mohd Afzanizam Abdul Rashid said historically, the ringgit’s volatility had always been contributed by external factors.

He pointed out that the depreciation of ringgit last year was triggered by the sharp increase in the US Federal Reserve’s fund rate and eventually became less of an issue when the Fed slowed down its pace on interest rates hike in December.

The Fed shifted the pace from 75 basis points to 50 bps and currently, it stood at 25 bps since February this year.

“However, issues surrounding the US debt limit have started to receive greater attention in the past one month when market participants started to pay attention to the debt ceiling expiry which now has been extended from June 1 to June 5.

“Fitch Rating has issued a warning by revising its rating outlook to negative last week. This would mean rating downgrade for the US government is quite likely should the decision to raise the debt limit is not resolved,” Afzanizam said.

He added that during heightened economic uncertainties, demand for the safe haven currencies would become prevalent as market participants were seeking shelter against volatility.

“By extension, the ringgit would weaken during such time. In that sense, given the possible speed bumps in respect to global growth this year, we shall expect the ringgit to remain weak in the near term,” he added.

Universiti Teknologi MARA faculty of business and management senior lecturer Dr Mohamad Idham Md Razak said an expected prolonged ringgit fall was looming due to a number of factors. This included issues faced by the Malaysian economy such as slowdown in growth, rising inflation and a growing current account deficit that could increase ringgit susceptibility to depreciation.

“The ringgit is losing ground to the US dollar relative to a range of other currencies. The ongoing conflict in Ukraine and the Federal Reserve’s hawkish stance on monetary policy are two reasons for this.

“There is a significant stochastic probability that the ringgit-dollar pair will drop to 4.75. This indicates that the likelihood is very high. Overall, the data point to a continued decline in the ringgit to dollar exchange rate,” he said.

Mohamad Idham added that with China being one of the country’s main trading partners, a slowdown in the former’s economy could potentially result in a decrease in demand for Malaysian goods.

“This can result in a drop in Malaysia’s profits from foreign exchange and a weakening of the ringgit.”

He added that the government could intervene in the foreign exchange market or continue raising interest rates to stabilise the local currency.

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