The drop in yuan affects the value of ringgit

23 Apr 2022 07:00am
Thumbnail from left: Yeah Kim Leng, Anthony Dass
Thumbnail from left: Yeah Kim Leng, Anthony Dass

SHAH ALAM - The ringgit continued to depreciate against the US dollar to its lowest point in nearly two years at RM4.29, triggered by the weak value of China's yuan.

Other factors that determine the near-term direction of the ringgit includes the strengthening of the US Dollar Index which measures the performance of the US dollar against a basket of currencies.

According to a report by The Star on Friday, economists informed that there were colliding factors that caused the weakness in the ringgit as well as the role of external and internal factors.

The ringgit has been depreciating since last week and it traded at an average of RM4.20 to the dollar in March.

AmBank group chief economist Anthony Dass said the ringgit had weakened in line with the yuan which had also weakened against the dollar.

“The US dollar has strengthened, driven by expectations of an aggressive rate hike in May which is expected to be at 50 basis point,” he said on Friday.

He said there was also a possibility of fund flow reversal from new markets due to the potential for tightening of monetary policy.

“Foreign equity flows to Bursa Malaysia have been in a net buying position until recently. Foreign net sales since April 12 saw an outflow of RM38 million. This is in line with the MSCI Emerging Index which has declined significantly since March 21,” he said.

Related Articles:

Dass at the same time also stressed that strong crude oil prices would provide support to the ringgit.

"This should provide some buffer to keep the ringgit at RM4.30 to the dollar," Dass said.

The FBM KLCI remained close to the 1,600 support level gaining 4.57 points or 0.29 per cent to 1,598.32 points.

Meanwhile, Sunway University Professor of Economics Dr Yeah Kim Leng said the global arena was also renewing their risk avoidance of a protracted war between Russia and Ukraine.

“Investors are rejecting the escalation potential of the Russia-Ukraine conflict because reports indicate that western countries have been supplying weapons to Ukraine and this may result in a protracted conflict.

“This will affect global risk tendencies which could ultimately affect equity markets,” Kim Leng said.

The hard currency considered in Asean is the Singapore dollar. The ringgit had weakened to RM3.15 per Singapore dollar, the lowest since January 2017.

Kim Leng said there were expectations for a stronger US dollar moving forward as investors expected interest rate hikes on the better-than-expected performance of the US economy.

"Besides that, China's economic outlook is closely linked to Malaysia because China is the country's largest trading partner," he said.

He said China's short-term economic outlook was also likely to be affected due to its tight strategy in dealing with Covid-19.

He added that foreign investors were also likely to sell Malaysian assets in anticipation of the Employees Provident Fund (EPF) dissolving its assets following the fourth round of withdrawals of up to RM10,000 from April 1.

"This is also a contributing factor as any declining sales in areas such as the bond market could affect the performance of the ringgit," he said.

However, he said there were factors that could give some support to the ringgit in the short term including the country's growing foreign exchange reserves.

"This will help mitigate any severe decline in currency depreciation," he said.

More Like This