KUALA LUMPUR: The ringgit recorded its biggest one-day gain in 17 years against the US dollar after a slew of economic data helped push the battered currency on an upward trajectory against the greenback.
The ringgit leaped 3.7% against the greenback yesterday to RM4.216 from RM4.371 on Tuesday after trade data for August showed that the weak ringgit had helped fatten an increasingly squeezed trade surplus that has been whittled away by poor commodity prices.
“The ringgit’s move yesterday showed just how volatile the market is and just how much the currency has been sold down over the past few months,” said an analyst.
Helping sentiment surrounding the ringgit were crude oil prices, where the price of Brent crude oil rose 1% higher to US$52.44. The ringgit has almost been in lockstep with the price of crude oil, often moving in the direction crude oil trades.
The spectacular jump in the ringgit’s value against the US dollar, which had hit a low of RM4.457 on Sept 29, was propelled by trade data yesterday, which showed that exports had climbed for the third straight month to a 4.1% rise in August. The ringgit, which is down 34% against the dollar year-to-date and is the worst performer in the region, got a lift when trade data showed that the weak domestic currency had helped exports.
Exports rose RM2.64bil to RM66.53bil compared with August 2014. This is the highest monthly export value recorded this year.
The expansion in exports was seen to China, the United States, the European Union, Thailand, Singapore, Vietnam, and the Philippines. The impact of the weak currency was conversely shown in imports which fell by 6.1% to RM56.34bil. The total amount of trade for August was RM122.86bil.
The widened difference between exports and imports helped Malaysia’s trade surplus balloon to RM10.19bil in August from RM2.37bil in July.
Ambers of the ringgit’s rise have been flickering over the past three days as the currency had reversed its downward trajectory. Rising crude oil prices helped arrest the decline in ringgit and the market got a lift after it was announced that Malaysia was on board with other countries in the Asia-Pacific region to work towards finalising the Trans-Pacific Partnership Agreement (TPPA) on Monday.
The signing of the TPPA, which is a comprehensive free trade agreement involving Malaysia and 11 other nations, is also seen as another positive as it will help export-driven Malaysia further promote its trade and investment agenda.
It was not just against the US dollar that the ringgit found strength. The local currency appreciated against the pound sterling and the Singapore dollar. It was at 6.4521 to the pound sterling from 6.6311 the previous day, and at 2.9810 to the Singapore dollar from 3.0208. The ringgit ended stronger against other regional currencies too.
The strengthening currency also boosted the FTSE Bursa Malaysia KL Composite Index or FBM KLCI, with the local bourse closing the day up 26.74 points to 1,689.25 on a volume of 2.69 billion shares.
Whether the ringgit has turned the corner is yet to be seen, but what is known is that there is a lot of money parked in foreign currency accounts in Malaysia.
Last week, StarBizWeek had pointed out that foreign currency deposits held by business enterprises had reached RM71.47bil as of July this year. That figure was at RM59.9bil in January this year.
This is an indication of how much locals and companies are holding back from converting their foreign currency deposits into ringgit.
A trader had remarked that a 10% swing in the foreign currency deposits can make a huge impact on the ringgit.
Moving forward, all eyes will be on Budget 2016. MIDF Research has said that the budget is expected to provide more stimuli, particularly in sectors which will provide a high multiplier impact and boost the social welfare of the country.
“The budget is expected to achieve this by putting an emphasis on development expenditure, while cutting back its operational expenditure through more prudent spending in parts of the government sector,” said MIDF.