KUALA LUMPUR: Malaysia is less exposed to US trade risk than its regional peers amid the rising trade war rhetoric following the latest changes in US President Donald Trump’s top administration.
Stephen Innes, the head of trading, Asia Pacific at OANDA said on Wednesday that on the regional front, the escalation of trade war rhetoric could weigh on regional sentiment.
In his research note issued on Wednesday, he said this followed US President Donald Trump’s decision to show Rex Tillerson, the Secretary of State, the exit.
“There is more risk aversion creeping into play as geopolitical uncertainty ratchets higher with the more hawkish foreign policy leaning, Mike Pompeo, now the face of US foreign policy. Equity investors remain extremely cautious about trade war escalations,” he said.
Innes also said the warning signs developing in oil markets could be of concern as news flow continues to point to burgeoning US supply amidst expanding fissures in OPEC compliance, he said.
He added the weaker US consumer price index (CPI), softer US yields and a robust seven year Malaysian MSG auction on Tuesday had seen favourable demand for the ringgit overnight.
This was despite the fact Malaysia's January industrial output came in below forecast.
“However, the softer US CPI and the negative implications on US yields suggest the ringgit bond carry trade is alive and well,” he added.
Innes also pointed out that despite the tepid US CPI inflation, US equity markets closed lower.