Ringgit was very bullish last week inspired by two economic announcements:
1. 1. August 18: Malaysia’s economy grew near the fastest pace in a decade in the second quarter with manufacturing industry grew 15.9 percent in the second quarter from a year earlier and exports of goods and services gained 13.8 percent. The economy expanded 8.9 percent in the second quarter, beating the 8.4 percent median forecast in a Bloomberg survey of economists.
2. 2. August 19: Bank Negara Malaysia (BNM) has eased regulations on ringgit transactions for trade settlement. The move was seen as another step towards full liberalization of the Riggit towards a freely traded currency.
Despite such impressive GDP result, the economic performance is still slacking if we compare to Singapore’s economic achievement during the first half of the year.
If we scan through the above chart of USD/MYR(the dark color ) and the USDSGD , the first three days both pairs move in tandem but on Thursday (August 19) there was a correction for USD/SGD while USD/MYR keep sliding downward. This clearly indicate that ringgit strength is more influenced by Bank Negara decision to get rid one of last vestige of the capital controls that Malaysia implemented in September 1998 i.e. that the Ringgit is still barred from international convertibility
Analysts viewed that the Bank Negara decision will the increased flexibility given to corporate hedging activity and this is the biggest driver of the ringgit's strength, as speculation mounted that BNM was moving towards allowing the currency to trade freely offshore.
In anticipation of pickup in capital inflow after easing currency regulation, Malaysian bond yields fell. Benchmark five year bond yields dropped to 3.32%, approaching an 18-month low of 3.29% this week.
Last week, I did mention that the support for USD/MYR was at 3.16. It was broken on Tuesday and the next support at previous low at 3.138 was also breached on Thursday. With both support decisively broken, the pair is currently on the bearish sentiment.
For the coming week, support is at 3.09 with resistance at 3.164.
