KUALA LUMPUR: The ringgit, bogged down for months by the 1MDB Scandal and crude oil heading south and affecting Asia’s only net oil exporter, has overnight become the region’s “best performing currency” although it still remains the least attractive, according to analysts.
The ringgit, according to Bloomberg News, has surged 9.7 per cent this quarter, the most in 43 years.
Several factors have come together including tax increases, spending cuts, oil recovering and 1MDB agreeing to sell energy assets and set to repay RM6 billion (USD1.5 billion) in debts in weeks. Earlier, forecasters had been predicting that the ringgit would weaken 8.4 per cent this year for the biggest plunge in the region, even going beyond the 17 year low reached in September when the Swiss Attorney-General said that USD4 billion may be missing from 1MDB.
The ringgit touched RM4.48 to USD1 in September.
“The ringgit is going to be one of the out performers in the region in 2016,” said Divya Devesh, the Singapore-based foreign-exchange strategist for Asia at Standard Chartered Plc.
“We are looking for a good rebound in oil prices. The market is still short on ringgit. So, we might see continued covering of positions, which should also be supportive.”
Macquarie Bank Ltd, the most accurate in Bloomberg’s ranking for last year, expects the ringgit to trade at RM3.90 to USD1 by June 30. The projection, which compares with the 4.25 median estimate in Bloomberg’s survey, has more to do with the greenback’s potential weakness rather than Malaysia’s fundamentals, said Nizam Idris, Macquarie’s Singapore head of foreign exchange and fixed income strategy.
The US Federal Reserve, which opted for a gradual increase in interest rates, drove emerging market currencies to perform their best in 18 years. The ringgit itself reached 3.9100 to USD1 on Thursday, the highest in eight months.
Standard Chartered, the most bullish in the Bloomberg survey of 27 forecasts, has upgraded its second quarter estimate to RM4 per USD1 from RM4.30 to USD1 on March 22. This is based on Brent crude being projected to reach USD60 per barrel by the year end and added to the Federal Reserve keeping its interest rates for the rest of the year.
Royal Bank of Canada expects RM4.60 to USD1 by June 30. That would be even worse than the low reached in September, when the Swiss froze assets linked to 1MDB.
The New York Times had then reported that a federal grand jury in the US was investigating allegations of corruption linked to Prime Minister Najib Abdul Razak.
The ringgit’s sustainability rests largely on the rally in oil, gas and petrochemicals, palm oil and electronics, the bulk of shipments abroad, besides concerns on US interest rates and scandals. The country’s exports grew at less than half the 10-year average last year, noted Bloomberg News.
“Broadly, we feel that oil prices have bottomed and that is the key indicator,” said Mirza Baig, the Singapore-based head of Asia Pacific currency and interest-rate strategy at BNP Paribas SA. He sees the ringgit continuing to trade around RM4 per USD1.
“The other positive factor is the resumption of inflows to emerging markets.”
Malaysian exports could be more resilient than we thought initially, said Trang Thuy Le, a Hong Kong-based macro strategist at Credit Suisse Group AG, which raised its three-month ringgit forecast in March to RM4 per USD1 from 4.30. “I would think a lot of the stability in the political situation has already been priced in.”
“Given the dovish tone of the Fed, we think that the dollar will likely continue to drift in the coming months and, because of the energy prices.”