KUALA LUMPUR: The ringgit has been relatively stable in 2019 despite global and domestic uncertainties, reflecting strong confidence among investors in the country’s currency.
The ringgit has performed pretty well taking into account the global economic fragility, trade war, Brexit turmoil and geopolitical risks, according to IQI Global chief economist Shan Saeed.
It concluded 2019 at RM4.08 – an eight-month high – for a 0.99% gain versus the US dollar year to date, as continued optimism about the US-China “phase one” trade deal kept investor sentiment positive.
On March 21, the ringgit touched 4.06 to the greenback at the close, the strongest level of the year, and fell to 4.22, its weakest level, on Sept 3.
Shan said the currency’s strength during the year was due to the economic growth, which was driven by higher productivity and a 10.3% rise in foreign direct investment to RM667.5 bil in the second quarter.
The generally low inflation rate also led to price stability, while macro economic stability encompassing political, economic, infrastructure and financial provided a stable outlook for the currency.
“The ringgit’s stability has surprised many investors since it has appreciated against the US dollar by 0.99%,” he said.
The ringgit kicked off 2019 at 4.0370/0400 versus the greenback on Jan 2, extending the momentum in 2018.
It advanced 1.4% against the US dollar in the first quarter following positive global developments.
Progress made on trade talks between the US and China contributed towards better financial market sentiments and supported regional financial markets, including Malaysia’s.
Investors’ risk appetite towards regional financial assets also improved after the US Federal Reserve signalled a pause in interest rate increases for the year.
In the second quarter, the ringgit was under pressure and depreciated 1.5% against the greenback.
The fall was due to sluggish domestic financial markets affected by cautious investor sentiment amid the moderating global growth outlook and escalation in global trade tensions.
A potential review of Malaysia’s inclusion in FTSE Russell’s World Government Bond Index also weighed down sentiments in the domestic bond market.
As a result, non-resident portfolio outflows of RM5.1 bil led the ringgit to depreciate by 1.5% against the US dollar during the quarter.
Considered as one of the biggest threats to the global economy, economic giants the US and China were at loggerheads over intellectual theft issue with various import tariffs having been raised since last year.
Owing to the threat, business sentiments weakened with the Global Purchasing Managers’ Index (PMI) for the manufacturing sector trending below the 50-point demarcation line between May and October.
“The foreign exchange markets were nervous and anxious about what would be the repercussions for the global economy,” said Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid.
In the third quarter, the ringgit depreciated by 1.1% against the US dollar on continued heightened risk aversion in global financial markets amid worsening trade tensions and concerns on the global growth outlook.
Such sentiment led to investors’ sustained demand for safe-haven currencies, including the US dollar.
However, the ringgit was not alone, as many other emerging market currencies were also pressured by the strength of the US dollar and global growth fears, FXTM research analyst Lukman Otunuga said.
“While the improving sentiment towards the Malaysian economy is likely to support the ringgit, upside gains remain threatened by external drivers,” he added.
Moreover, big institutions such as the International Monetary Fund, World Bank and World Trade Organisation have marked down their forecasts for 2019 and 2020.
“Consequently, risk aversion has set in, leading to greater demand for the safe-haven US dollar especially in September,” Afzanizam noted.
Fortunately, he said, the recent favourable developments, especially the de-escalation of the trade war between the two world economic giants, were positive for the ringgit.
In the final quarter, the ringgit advanced 2.29% versus the US dollar as the US and China were determined to sign off the “phase one” deal in January.
During the quarter, investors’ risk appetite in global financial markets also improved following signs of optimism in global trade negotiations between the two countries as well as the Brexit deal.
On the ringgit’s outlook, Shan expects the local currency to remain stable next year, hovering between RM3.97 and RM4.30 against US dollar in line with Chinese yuan and crude oil movements.
AMMB Holdings Bhd group CEO Datuk Sulaiman Mohd Tahir said the ringgit remained tied to trade relations between the US and China.
“Should trade negotiations prove favourable, this could see a stronger renminbi against the US dollar, which would bode well for the ringgit to strengthen,” he said. – Bernama
