Ringgit at 2 year high
Filed Under (Other News) by Webmaster on 02-08-2010
Tagged Under : Ringgit Malaysia
The ringgit rose to a new two-year high yesterday against the US dollar and was the second biggest daily gainer behind the won, as persistent worries about the economic health in the West drove investors to Asian markets in search of higher returns.
Analysts said the ringgit’s rise was underpinned by relatively sound economic fundamentals at home and around the region, as well as a bullish technical view on the currency.
With the US, Japan and much of Europe forced to keep rates at near zero, international investors are flocking back into markets with higher yielding currencies.
To some extent, massive inflows into the region again raised concerns about speculative fund movement, although some analysts viewed the recent rally as receiving a lot more interest from sovereign and real money funds – such as from pension and insurance firms.
“Having said that, a major reversal in sentiment could still see a sizeable adjustment given the size of foreign funds parked in Asia, even if you don’t want to refer to these funds as the traditional hot money as we all know and loathe,” said Nizam Idris, a Singapore-based currency strategist at UBS AG.
It was estimated that foreign investors bought almost a net US$9bil of stocks in India, Indonesia, South Korea, Taiwan, Thailand, Vietnam and Pakistan in July, although no figures were available for China and Malaysia.
Official statistics released by Bank Negara last Friday showed overseas funds raised their holdings of ringgit-denominated bonds for a fourth straight month to RM96.1bil in June.
They owned RM59bil worth of government bonds, the highest level since records began in 1970, according to a Bloomberg report.
“The ringgit is riding up on this wave of foreign money coming into the market,” said Anthony Dass, head of research at Inter Pacific Securities.
The ringgit advanced 0.7% yesterday against the US dollar to 3.1595. So far this year, the local unit had appreciated 8.4% to lead Asian currencies’ gain against the greenback.
“We remain bullish on the ringgit and foresee a retest of 3.07 if it breaks below 3.16 soon,” RHB Research Institute wrote yesterday in a technical outlook for the ringgit.
Bank Negara was the first Asian central bank to lift rates early this year as it sought to “normalise” domestic borrowing cost from a record low. The central bank had so far increased the benchmark overnight policy rate (OPR) three times at 25 basis point each time. The market is projecting the OPR to end the year at 3%, which means there could be one more 25 basis point hike in the coming months.
Analysts believed that the recent rate hikes were the major driver for the currency’s surge.
With the economic recovery gaining traction across Asia, policymakers are moving away from crisis-fighting mode and have become increasingly concern about inflation in the home market.
A number of Asian central banks have raised interest rates in recent months and Indonesia could follow soon after consumer prices in the country rose sharper than expected in July.
Meanwhile, the US economy grew at a slower pace than expected in the second quarter, stoking fears that the recovery in the world’s largest economy is faltering.
AmResearch economist Manokaran Mottain wrote yesterday that the US economy “looks weak’’ and was still dependent on public policy support.
“To withdraw it too soon risks plunging the economy back into recession,” he said, adding that the US was expected to keep interest rates low for “an extended period.”
