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The Malaysian Ringgit is within a whisker of its 1998 record low

A Malaysia Ringgit note is seen in this illustration photo June 1, 2017.     REUTERS/Thomas White/Illustration
A Malaysia Ringgit note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration (REUTERS / Reuters)

By Karl Lester M. Yap

(Bloomberg) — The ongoing slide in the ringgit puts it a whisker away from a record low, and continued weakness in Malaysia’s exports as well as dollar strength may just push the currency past that level.

The Malaysian ringgit is about 2% away from reaching 4.8850 per dollar, a level last seen in 1998 when the Asian financial crisis ravaged the region’s currencies. The local currency has dropped nearly 4% this year.

Bloomberg

“There is a risk that the ringgit will reach a new all-time low,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group. “Exports are not recovering unlike those in other Asian economies and economic growth may remain lackluster.”

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China’s floundering economy is hurting the Southeast Asian nation’s exports, which have declined for a 10th consecutive month in December. While Malaysia still holds a current-account surplus, its ratio to gross domestic product has fallen to near the lowest in 20 years, limiting support for the currency, according to Bloomberg Intelligence. Trade data for January is due on Tuesday.

Slumping exports have also weighed on Malaysia’s economic growth. Coupled with concerns over political stability following alleged attempts to bring down Prime Minister Anwar Ibrahim’s administration and the persistent dollar strength, the outlook for the ringgit looks grim.

Traders will keep an eye on inflation data this week, which will offer clues on Bank Negara Malaysia’s ability to maintain interest rates and support the currency should the greenback’s strength prevail as investors pare bets on Federal Reserve rate cuts.

Key Level

The ringgit hit 4.7958 in October, the weakest since 1998. A decline beyond this level may bring the 4.82 to 4.85 ringgit-per-dollar range into focus, according to a Bloomberg technical analysis.

“If the dollar continues to head higher, either due to further push-back in the Fed cut cycle or a bigger risk-off event, then the risk for the ringgit will persist,” said Christopher Wong, a currency strategist at Oversea-Chinese Banking Corp. in Singapore.

To be sure, most analysts are forecasting a stronger ringgit by the end of the year as Malaysia’s economic growth gains momentum. OCBC sees the currency recovering to 4.60 per dollar, while ANZ predicts a level of 4.45.

The central bank is also expected to keep its key interest rate unchanged through 2024, even as the Fed eases its monetary policy.

“This would eventually narrow the yield differentials between US and Malaysia, providing support for the currency,” Wong said. “There’s room for the ringgit to recover some lost ground.”

Here are the key Asian economic data due this week:

  • Monday, Feb. 19: Thailand GDP

  • Tuesday, Feb. 20: China 1-year and 5-year loan prime rate, Malaysia exports and trade balance

  • Wednesday, Feb. 21: South Korea PPI and business surveys, Japan trade balance and exports, Bank Indonesia rate decision, Australia Westpac leading index and wage price index, New Zealand PPI

  • Thursday, Feb. 22: Bank of Korea base rate, Japan Jibun PMI, investment flows data, Indonesia current-account balance, Malaysia foreign reserves, New Zealand trade data

  • Friday, Feb. 23: Thailand foreign reserves, Malaysia CPI, Singapore CPI, New Zealand retail sales ex inflation

—With assistance from Akshay Chinchalkar and Ronojoy Mazumdar.

©2024 Bloomberg L.P.