Ringgit expected to face further upward pressure
By Rupa Damodaran
Published: 2010/04/24
THE ringgit, which has been on the uptrend since early this year, is likely to face another round of appreciation pressure with the impending revaluation of the Chinese yuan, said economists.
The ringgit was ranked as one of the top three performing Asian currencies in the first quarter of 2010, alongside the rupiah and the rupee.
US investment bank Citi said the ringgit is perceived by the markets as one of the best proxy plays for a yuan revaluation.
It expects the appreciation of the yuan to be gradual, from an initial 0.5-1 per cent appreciation, followed by a 3 per cent gradual appreciation.
"While the yuan revaluation may have already been partly priced in the ringgit appreciation over the past month, there could be another leg of ringgit appreciation pressure once the yuan actually moves, such that the cross rate could stay relatively stable," said economist Kit Wei Zheng in a report.
The ringgit-yuan cross was stable or slightly higher post July 2005 de-pegging.
The ringgit closed slightly higher against the US dollar yesterday. It was traded at 3.1900/1930 compared with 3.1955/1965 on Thursday.
AmResearch Sdn Bhd said the ringgit should be fairly valued at RM3.10 per US dollar by year end.
Its senior economist Manokaran Mottain said the ringgit has appreciated by as much as 7.0 per cent against the greenback since the beginning of the year, at a two-year high of RM3.20 per US dollar.
Against the yuan, the ringgit also reached a 22-month high last week at 46.75 sen, after China's central bank acknowledged that "sooner or later" the yuan peg to the US dollar must end.
Manokaran said according to the widely-followed Big Mac index, a measure of relative currency value by the Economist, the ringgit is 40 per cent below its fair-value benchmark with the US dollar as at March 16 2010 (at 3.3245 per US dollar).
"Based on real effective exchange rate, the ringgit has on only strengthened marginally by about 1 per cent, but 7 per cent in nominal value," he added.
Maybank Investment Bank (Maybank IB) said the early interest rate hike by Bank Negara Malaysia could also be one for the reasons for the ringgit's rise since early February.
The advance so far this year was also broad-based, that is, against other major currencies and regional counterparts.
Another reason could be the stronger than expected rebound in gross domestic product (GDP) growth this year, after the better-than-expected recovery in the year-on-year GDP growth in the fourth quarter of 2009.
"Key economic indicators for the first two months of 2010 are certainly pointing to the acceleration in real GDP growth in the first quarter of 2010," Maybank IB chief economist Suhaimi Ilias said in a report.
"Overall, this contributed to the upside resilience in the local equity market on expectations of robust earnings growth amid signs of strengthening and potentially stronger-than-expected local and global economic recovery this year," he added.
Thailand's political turmoil may have also induced funds to switch to "defensive markets" like Malaysia, while news of China's revaluing its currency has encouraged speculative flows into regional currencies.
By Rupa Damodaran
Published: 2010/04/24
THE ringgit, which has been on the uptrend since early this year, is likely to face another round of appreciation pressure with the impending revaluation of the Chinese yuan, said economists.
The ringgit was ranked as one of the top three performing Asian currencies in the first quarter of 2010, alongside the rupiah and the rupee.
US investment bank Citi said the ringgit is perceived by the markets as one of the best proxy plays for a yuan revaluation.
It expects the appreciation of the yuan to be gradual, from an initial 0.5-1 per cent appreciation, followed by a 3 per cent gradual appreciation.
"While the yuan revaluation may have already been partly priced in the ringgit appreciation over the past month, there could be another leg of ringgit appreciation pressure once the yuan actually moves, such that the cross rate could stay relatively stable," said economist Kit Wei Zheng in a report.
The ringgit-yuan cross was stable or slightly higher post July 2005 de-pegging.
The ringgit closed slightly higher against the US dollar yesterday. It was traded at 3.1900/1930 compared with 3.1955/1965 on Thursday.
AmResearch Sdn Bhd said the ringgit should be fairly valued at RM3.10 per US dollar by year end.
Its senior economist Manokaran Mottain said the ringgit has appreciated by as much as 7.0 per cent against the greenback since the beginning of the year, at a two-year high of RM3.20 per US dollar.
Against the yuan, the ringgit also reached a 22-month high last week at 46.75 sen, after China's central bank acknowledged that "sooner or later" the yuan peg to the US dollar must end.
Manokaran said according to the widely-followed Big Mac index, a measure of relative currency value by the Economist, the ringgit is 40 per cent below its fair-value benchmark with the US dollar as at March 16 2010 (at 3.3245 per US dollar).
"Based on real effective exchange rate, the ringgit has on only strengthened marginally by about 1 per cent, but 7 per cent in nominal value," he added.
Maybank Investment Bank (Maybank IB) said the early interest rate hike by Bank Negara Malaysia could also be one for the reasons for the ringgit's rise since early February.
The advance so far this year was also broad-based, that is, against other major currencies and regional counterparts.
Another reason could be the stronger than expected rebound in gross domestic product (GDP) growth this year, after the better-than-expected recovery in the year-on-year GDP growth in the fourth quarter of 2009.
"Key economic indicators for the first two months of 2010 are certainly pointing to the acceleration in real GDP growth in the first quarter of 2010," Maybank IB chief economist Suhaimi Ilias said in a report.
"Overall, this contributed to the upside resilience in the local equity market on expectations of robust earnings growth amid signs of strengthening and potentially stronger-than-expected local and global economic recovery this year," he added.
Thailand's political turmoil may have also induced funds to switch to "defensive markets" like Malaysia, while news of China's revaluing its currency has encouraged speculative flows into regional currencies.