2015 Shoves The Malaysian Ringgit Lower

By Zairina Zainudin KUALA LUMPUR, Dec 31 (Bernama) -- 2015 was a very unfavourable year for the Malaysian ringgit, dampened by weak investor sentiment and undermined by both internal and external factors including depressed commodity prices and the bearish global economic outlook. The local currency was also punished by the prolonged anticipation of the US interest rate hike, as well as, deep concerns over the slowdown of the Chinese economy, which dented investor sentiment towards emerging markets. ForexTime (FXTM) Ltd Chief Market Analyst Jameel Ahmad said the argument was that the ringgit has been hard done this year with external factors mainly behind the excessive decline. "While this is in some way accurate, spectators have to be aware that other circumstances such as slowing economic growth and a possible government investment scandal (relating to 1Malaysia Development Bhd) would have also exerted pressure on the currency," he told Bernama. The ringgit kicked off the year at 3.5075/5059 against the US dollar on Jan 2, before fluctuating throughout the year to depreciate beyond 4.00 per US dollar since mid-August. Due to mounting concerns over the falling ringgit, the government monitored all activities on non-deliverable forward ringgit offshore, including in Singapore, said Minister in the Prime Minister's Department Abdul Wahid Omar on Sept 1. Despite claims of the ringgit being the worst-performing emerging Asian currency this year, depreciating a reported 20 per cent against the greenback, the government and economists opined that the local unit was relatively undervalued given the country's strong fundamentals. "As far as the ringgit is concerned, what we need to do is to make sure that we stick to the fundamentals while reviewing other policy options. "Eventually, the value of the ringgit will reflect its underlined fundamentals," Wahid said. On Sept 28, jitters over the risk of more outflows from Malaysian Government Securities sparked selling in the forex market, pushing the local currency to a 17-year low of 4.4160/4240 against the greenback. It had earlier depreciated to 4.4080, its lowest level since the 1998 Asian financial crisis, due to the anticipated hike in interest rates by the US Federal Reserve and the further devaluation of the Chinese renminbi. The ringgit further contracted the next day to 4.4540/4590, marking its weakest performance this year. Bank Negara Malaysia (BNM or Malaysia's Central Bank) Governor Zeti Akhtar Aziz in November said although the economy faced considerable shocks, it had remained resilient as reflected by the steady economic growth. She said the central bank would not peg or introduce capital controls to curtail the ringgit's slide against the greenback. Prime Minister Najib Razak had commented that the ringgit's depreciation was due to external factors and not because of the government's failure to manage the economy. In early October, the ringgit rebounded following Malaysia's biggest trade surplus in nine months and a recovery in crude oil prices. The domestic currency led gains among emerging Asian currencies in late November as crude oil prices climbed, coupled with news that the debt-ridden state fund, 1Malaysia Development Bhd had agreed to sell its energy business in a US$2.3 billion cash deal to China General Nuclear Power Corporation. The ringgit then continued its 'roller-coaster' pattern ahead of a potential hike in US interest rates in mid-December. In tandem with global analyts' projection, Federal Reserve raised the base rates for the first time in nearly 10 years, moving higher from a rate of zero to 0.25 per cent. This positively influenced the movement of the ringgit which saw the currency recover towards the end of the year, closing the penultimate trading day of 2015 at 4.2900 against the US dollar compared with 3.4950/4980 a year ago. Against other currencies, the local unit fell vis-a-vis the Singapore dollar to 3.0367/0423 from 2.6451/6490 on Dec 31 last year and weakened against the Japanese yen to 3.5637/5698 versus 2.9222/9252. The ringgit depreciated against the British pound to 6.3604/3716 year-on-year from 5.4424/4485 and decreased against the euro to 4.6851/6940 from 4.2475/2522 previously. Going forward, Jameel said the divergence in economic sentiment and monetary policy between the United States and else where would continue to drive market volatility. He said the movement of the ringgit would be influenced by swings occuring in commodities markets next year. "Now that the price of West Texas Intermediate (WTI), a benchmark in crude oil pricing, has fallen to US$35 per barrel, we need to bounce and maintain higher oil prices to improve the ringgit's potential. "Consistency in oil markets is going to be crucially important because there is no advantage to the currency in the longer-term if the price of WTI bounces above US$40 per barrel once again before retreating back to its milestone lows," he said. Meanwhile, Affin Hwang Capital said with good domestic economic fundamentals, as reflected in the healthy current account surpluses together with stable international reserves, the ringgit should appreciate gradually against the US dollar. "We see ringgit trading at below RM3.95 per US dollar by end-2016 against RM4.32 per US dollar currently," the research house said. As at mid-November, BNM's international reserves stood at US$93.9 billion (RM417.2 billion), sufficient to finance 8.6 months of retained imports and was 1.1 times the short-term external debt. --BERNAMA