Unpredictable market dampens rise in local currency
PETALING JAYA: A massive inflow of funds from overseas into the local bond and stock markets in recent weeks is helping the ringgit regained some lost ground against major currencies after a dreadful 2015.
But analysts said the immediate upside for the local currency seems limited by the unpredictable market condition.
Independent forex strategist Suresh Ramanathan said there would be an occasional spike in the ringgit for the next few months because there were still noises in the market including the new governor of Bank Negara as well as the upcoming gross domestic product (GDP) results for 2015 and inflation rate in February.
“There is still uncertainty in the market and there would be an occasional spike in the ringgit,” he told StarBiz.
The ringgit was little changed yesterday at 4.058 against the US dollar. The local currency had risen 9% against the US dollar from its January low of 4.41.
The sharp appreciation has soured investors’ sentiment on glovemakers on expectation that the stronger ringgit will dampen their earnings prospects.
But elsewhere, foreign investors’ appetite for local stocks is returning.
According to MIDF Research, up to March 18, cumulative net foreign purchases amounted to RM3.63bil, which is close to the highest level seen in three years.
“Provided there is no break in the momentum of the money flow, the haul in March is set to be the highest since April 2013, which was just before the general election,” it said in a report yesterday.
On a year-to-date basis, total foreign inflow stood at RM3.09bil. In 2015, the net outflow for 2015 was RM19.5bil.
Last week, the local equity market saw more than RM1bil of foreign money inflow, marking two consecutive weeks of such value, according to MIDF Research.
Net inflows by foreign investors amounted to RM1.48bil last week, 42% higher than the RM1.04bil the week before, the research house said.
“Foreign investors were net buyers every day throughout the week. As of Friday, foreign investors had been buying continuously for 14 consecutive days,” it said.
This week, the Statistic Department will release February’s inflation rate while Bank Negara will announce its international reserves position and its 2015 annual report.
Meanwhile, Saktiandi Supaat, Singapore-based head of foreign exchange research at Maybank said he was looking at the next support level of the US dollar/ringgit rate at 4.01 before the 3.90 level.
“Government bonds continued to rally on the back of broad US dollar weakness, with foreign buying seen on bonds at the belly amid good trading volume.
“Trading was heaviest on the 7-year benchmark MGS. This week will see the auction on new 10.5-year MGII 9/26 which we anticipate at RM4bil,” he said in a report yesterday.
An economist said that while there was a theory that a stronger ringgit would hurt export growth, the impact would be minimal at the current environment.
“The demand for exports is already sluggish. We expect the stronger ringgit would not have much impact on demand,” he told StarBiz.
“On the other hand, we believe exporters could benefit from cheaper imports,” he added.
The economist said the recent strength in the ringgit was supported by higher crude oil prices and he believed that the support could be short lived.
“The strength in the ringgit may not be sustainable, we are looking at a 4.00-4.20 range against the US dollar,” he said.