Malaysian Ringgit breached below 4.50 against the US Dollar (from 4.25); a staggering 5% drop within a single day. What is happening and why is the Malaysian Ringgit weakening?
(Updated: 3pm and 6:45pm with BNM measures)
Why is the Malaysian Ringgit Falling?
With major Asian currencies falling, especially the Malaysian Ringgit, here are some possible insights as to why:-
- USD strengthened with increased market sentiments since Trump actually won the elections. Likely for US federal rate hikes and US government domestic spending to increase too.
- Trump’s election promise to deregulate production of shale, oil, natural gas, and clean coal in his first 100 days in office, coupled with OPEC (The Organization of the Petroleum Exporting Countries) unable to enforce production cuts is affecting Malaysia as a country dependent on oil exports.
- 10-year US treasury yields rise above 2% and marked largest 4-day gains since 2013, with capital flowing into US.
- Foreign investors in Malaysian government bonds may move funds out of Malaysia or elsewhere, in view of improved US markets and Malaysia’s continued political/domestic factors.
- Currency traders racking up gains from USD/MYR collapse, therefore further exacerbating the drop.
What does Bank Negara Malaysia (BNM) say?
On the morning of 11 November 2016, it was widely circulated on social media that BNM has frozen trading and transfers in USD/MYR. This news likely started with BNM instructing banks to curb speculation.
BNM has since come out to inform that the central bank has not instructed banks to freeze derivative and spot transactions involving the Malaysian Ringgit to reduce USD/MYR volatility. However, BNM is dealing with individual banks.
BNM later in the day released the following press statement:
Statement by Financial Markets Committee on Financial Market Stabilisation Measures
With the surge in volatility, the ringgit foreign exchange market has become prone to extreme movements. “Recent offshore market activities have brought on significant volatility and undue adverse influence on ringgit prices. As the ringgit is a non-internationalised currency, prices should be fully determined by onshore financial market transactions that are driven only by the fundamentals and genuine trade and investment activities in Malaysia”, says Assistant Governor Adnan Zaylani.
Bank Negara Malaysia is taking measures to ensure the markets do not price ringgit excessively and out of sync, while providing the necessary liquidity in the foreign exchange market. The Central Bank, through the Financial Markets Committee (FMC), is also in close engagement with all market participants to update and monitor the market situation.
The FMC thus would like to reiterate to market participants that Malaysian financial markets are open to all market participants to facilitate their financial market transactions and capital flows arising from the real economic sectors, trade and investment activities.Bank Negara Malaysia
11 November 2016
- BNM’s official site, Facebook & Twitter
- Malaysian Ringgit plunges in offshore markets (The Edge)
- BNM: Ringgit should be fully determined by onshore market (The Edge)
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