PETALING JAYA: The ringgit is poised to trend upwards on the domestic currency strengthening to RM4.4135 as at 5pm yesterday, its strongest showing year to date. This came about amidst the continuing decline of the US dollar.
Supported by measures taken by Bank Negara last December to increase the demand for the ringgit, the local currency rose to a record four-month high yesterday.
The ringgit opened for trading approximately 0.06% higher at RM4.4236 against the US dollar, in contrast to Friday’s close of RM4.4262. It was the ninth best-performing Asian currency.
The ringgit strengthened to RM4.4135 as at 5pm(0900gmt) Monday, its strongest showing year to date
The strengthening of the ringgit is now into its fourth consecutive week. Despite the stronger performance of the ringgit against the greenback, the local currency traded lower against other major currencies when compared to Friday’s close.
Backed by improvements in Malaysia’s economic fundamentals and the return of foreign investors, the ringgit’s performance against the US dollar has been improving gradually.
Foreign portfolio funds have been net buyers in the local stock exchange. For seven consecutive weeks, foreign investors have been net buyers on Bursa Malaysia. As of March 24, cumulative foreign net purchase amounted to RM3.23bil.
The US dollar’s performance has gone on a downtrend in recent times. MIDF Research said that the greenback continues to weaken beyond the third consecutive week.
“The US dollar index shed 0.7% to close below the 100 level for the first time in more than a month. The greenback’s decline was primarily attributed to the Republicans’ decision to pull their healthcare bill, which then raised questions over the Trump administration’s ability to follow through with its economic reform,” the research house said in a note.
MIDF Research also highlighted that emerging-market currencies made further inroads last week, following the continuing dollar slide.
The US dollar index hit the lowest point year-to-date at 99.17 compared to the highest value of 103.21 registered in the first week of January this year.
In fact, the index’s present value is the lowest in five months, indicating the gradual decline of the US dollar, which had surged drastically in the aftermath of the US presidential election.
The US dollar index is a measure of the value of the US dollar relative to a basket of foreign currencies, namely, the euro, British pound, Swiss franc, Japanese yen, Swedish krona and the Canadian dollar. An increase in the index’s value indicates the appreciation of the US dollar against the other currencies. In the event of a decline in the index’s value, the reverse is true.
Ringgit volatility against the greenback has also continued to recede, indicating a gradual exit from the sentiment-driven currency fluctuation period. The one-month implied volatility, a measure of the ringgit’s exchange rate stability, fell to 5.82% yesterday, hitting the lowest point in three years. In the last one year, the implied volatility touched as high as 17.15% in mid-November last year, following Donald Trump’s unexpected triumph at the US presidential election.
Bank Negara said that expectations of a delay in the US interest rate normalisation and further monetary easing in advanced economies put the ringgit in a position of strength in the first quarter of 2017.
In 2016, the ringgit was affected by market uncertainties and shifts in portfolio flows, causing the local currency’s depreciation by 4.3% to end the year at RM4.486 against the US dollar.
StarBiz had reported in January that Bank Negara governor Datuk Muhammad Ibrahim said the full impact of the measures implemented by the central bank was expected to be seen in mid-2017.
“However, these new measures are not capital control or the fixing of the ringgit, but to stabilise it and ensure liquidity in the market,” said Muhammad.