The impact of European Zones sovereign debt crisis is relatively muted on Malaysia, as the US Dollar appreciation was heavily influenced by underlying sentiment in Europe but the USDMYR is seen moving downward.
The pair which went to the top at 3.2996 on Friday(7th May) of the previous week went tumbling down to a minor support at 3.1813 on Tuesday(11th May). There was a minor rally to the 50% retracement by the middle of the week before closing lower by the end of the week to the above the minor support at 3.1813.
The heavy fall for the pair was partly attributed to the expected announcement by Bank Negara raising the Overnight Policy Rate (OPR) by 25 basis points to 2.50 per cent. The decision follows Malaysia’s economic expansion of 10.1 per cent for the first quarter of this year, the country’s first double-digit growth in 10 years.
Malaysia was among the first Asian countries to withdraw monetary stimulus this year, calling its move a “normalization” of rates rather than policy tightening. The Bank Negara’s rate increase in March was the first in almost four years.
Faster growth in Asia is causing central banks in the region to withdraw monetary stimulus through interest-rate increases and the withdrawal of excess cash in their financial systems.
India and Vietnam have raised borrowing costs to contain inflation, while China has ordered banks to set aside more reserves three times this year to avert asset bubbles.
Loking at the 1HR chart of the pair(see the chart below), the pair is under pressure to move further downward as the 60 and EMA had a dead cross on Thursday with RSI and MACD is at oversold position. I am looking for the pair to move to the next support at 3.17 but breaching the 50% retracement will indicate a short term bullish tone.
