The ringgit’s QE woes

CURRENCY movements usually signal broader macro trends in the capital markets or in the economy. The simplest explanation is that the strength or weakness of any currency is based on how strong or weak an economy is and what monetary or fiscal policies are prescribed.

The ringgit has been on a weakening trend for over two weeks and the main factor is likely the long-awaited reduction of the US Federal Reserve’s balance sheet, which had ballooned under three successive quantitative easing (QE) programmes implemented to support the US economy by holding down long-term interest rates.