The Malaysian Ringgit has been demonstrating promising performance against the US Dollar in the past 7 months. Learn more about the current situation of Malaysian Ringgit versus the US Dollar during the global economic recovery period.

The Ringgit has regained its position at its highest level in seven months. This is due to a weaker United States (US) Dollar. USDMYR stood at 4.1400 compared to 4.2756 2 months ago and 4.3252 6 months ago.

Why the strengthened Ringgit versus USD?

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US jobless benefits cut as the $600 monthly unemployment benefit expired leaving only state benefits. The latest US unemployment rate is still high although it has dropped slightly in August from 10.2% to 8.4%.

US GDP contraction with 2020 2Q being the worst annualised GDP drop since the Great Depression at -32.9%. Consumer spending (which accounts for 2/3rds of spending) -34.6%, services -43.5% and consumer goods -15.9%. There was also a drop on spending on imported goods and private sector investment.

US negative rates fears abound with current rates slashed by US Feds to already near zero. The reasoning being to make hoarding cash undesirable and to encourage spending. US has never had a negative interest rate though other countries such as Germany, Denmark, Switzerland and Hungary have implemented negative nominal interest rates.

Stronger oil and Crude Palm Oil (CPO) prices have helped boost the Malaysian Ringgit which is dependent on these commodities exports.

Positive Malaysia Government Securities (MGS) yield have resulted in increase foreign demand.

 

“There are significant foreign demand for MGS on expectations of another rate cut in September. Malaysia has also been an exemplary economy for fighting the virus amid low virus case counts.” ~Stephen Innes, AxiCorp chief global market strategist.

USD woes far from over

According to a Reuters report, the US currency can plunge for 36% against the Euro over the next year. The weakness that the US Dollar has been experiencing can lessen the confidence of investors and possibly signify the beginnings of a very large move. The US Dollar currency is near to its lowest level in 27 months and declined by 11% from its 2020 peak against its peers.

The lesser value of the US Dollar can have an impact on markets when it loosens financial conditions and any continuous decline could send a signal that made investor doubts on US economic growth and finances as well as the potential future of weakened Dollar value.

The upcoming US presidential elections will also impact the US Dollar. Both presidential candidates tout how they will make sure that there is a strong US Dollar on the campaign trail. For Trump and the Republican Party, monetary policy is centred on national debt reduction and increased private job creation. For Biden and the Democratic Party, monetary policy is focused on increased government spending and public sector job creation.

Overall

Investors are looking at assets and other currencies that are more stable. Especially countries that have showed a good response in the face of the Covid-19 pandemic. Other reserve currencies such as China’s Yuan are increasingly finding favour.

Even though the US Dollar is expected to decline modestly but the world’s dependence on the currency for trade and commerce will likely to prevent a crash for the US currency. The Ringgit can also expect some rise if the current government effort to contained the pandemic is successful alongside with the vaccine creation.

The Ringgit in the near-term is expected to trade in a tight range. Eyes will be on the upcoming Monetary Policy Meeting on September 10 where some analysts are expecting a further 25bps rate cut.

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