RINGGIT THE VICTIM AS U.S.-CHINA TRADE WAR ESCALATES – LOCAL UNIT DOWN TO LEVELS LAST SEEN IN 2017

A STRONGER dollar, the trade war between the US and China and a downtrend in crude oil prices have dragged the ringgit to one of  its lowest since 2017, said analysts.

At 6pm, the ringgit closed at 4.2200 against the dollar, down from last Friday’s 4.2030.

FXTM analyst Han Tan said the ringgit has been trading against the US dollar at levels not seen since 2017.  The ringgit hit RM4.2205 on September, 29, 2017.

“The stronger dollar is weighing on currencies across the G10 and Asian markets, with the dollar index reaching a two-year high. The uncertainties surrounding the US-China trade impasse is also fuelling the risk-off mode evident in markets, which is dampening appetite for emerging-market assets,” he told The Malaysian Insight.

Tan said the downtrend in Brent crude oil prices, which has been a key driver for the ringgit’s performance, is also providing little support to the local unit.

“Oil prices have failed to cling on to recent gains, with Brent futures struggling to register a meaningful break above US$61/bbl in recent weeks. The lack of conviction among oil bulls is offering scant support for the ringgit, considering that oil has been a conventional driver of the ringgit’s performance,” he said.

At press time, Brent crude oil was trading at US$58.66 per barrel.

On whether the ringgit could weaken further, Tan said the deteriorating global economic condition will dampen appetite for emerging markets assets, including the ringgit.

The global economy is set to face greater headwinds with new and higher tariffs expected to be imposed on global trade in the coming months.

“Should US-China trade tensions see significant escalation, that will trigger another bout of risk aversion that could hurt riskier assets across emerging-markets (EM), including MYR.”

China has filed a case with the World Trade Organisation against the US after President Donald Trump’s administration slapped China with a new wave of tariffs on US$300 billion of China exports.

“The Dollar’s seemingly unrelenting climb also severely curtails the upside for Asian currencies over the near-term. However, should the US Federal Reserve embark on a more aggressive stance in cutting US interest rates, that may trigger some softness in the Dollar, which should alleviate the downward pressure on Asian currencies,” he added.

“Over the near-term, the next key resistance level for USD-MYR can be drawn at 4.253, while the support line is seen at 4.192,” he projects.

OCBC Bank economist Terence Wu said the ringgit could range between RM4.23 to RM4.25 against US$1.

“Overall, we think there are a host of negative factors set against the Asian currencies for now. This macro environment translates to further upside pressure for the rest of USD-Asia, USD-MYR included. In this context, the risk-reward favours further upside for the USD-MYR. For now, the next target range may be between 4.2300 and 4.2500,” said Wu.

Wu said there is no reprieve for the yuan as tensions between the US and China are unlikely to tone down.

– https://www.themalaysianinsight.com

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