Ringgit volatility rises before U.S. CPI report

KUALA LUMPUR: A gauge of anticipated ringgit volatility rises for a second day before a U.S. inflation report on Friday that may provide guidance about when the Fed will resume raising interest rates.

* 1-month implied volatility for US/MYR climbs 1bp to 5.72%

* USD/MYR little changed at 4.2847 after rising 0.2% Monday

** Support 4.2760, 4.2663, 4.2505; resistance 4.3022, 4.3055, 4.3217

* Ringgit may come under pressure as a meeting between oil producers to address oversupply is likely to disappoint, says Sean Yokota, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore

** Traders have reduced short US dollar positions after last week’s NFP report and this may continue if there’s a strong print in U.S. inflation data this Friday

** Still, emerging markets remain attractive in the face of rising interest rates in the developed world as growth is holding up and inflation remains contained

* Ringgit is among EM FX that Morgan Stanley favours, according to a report released Monday

** Co. suggests using Europ to fund purchases of EM currencies as EM remains fundamentally in good shape and valuations look cheap against EUR

* Malaysia’s 10-year goverment bond yield little changed at 4%

* Foreign ownership of Malaysian sovereign and corporate debt securities fell 1.2% to RM192bil in July from previous month: central bank data showed late Monday

* Although there’ll be sizable bond redemptions from August to October, there are unlikely to be significant maturity-driven outflows as foreign ownership of Islamic securities is low and holdings of other notes have been reduced, Winson Phoon, a fixed-income analyst at Maybank Investment Bank, wrote in note Monday

** Second half will be challenging as external risks such as a change in market pricing on the pace of further Fed hikes may shift broad EM flow sentiment

* Global funds bought net RM151.2mil of Malaysian stocks last week, a 4th week of purchases: MIDF Amanah Investment - Bloomberg