Last week we saw that the ringgit strengthened against the US Dollar with the most of the move occurred on Monday and Friday.
On a trade-weighted basis, the benchmark currency, US Dollar Index slipped below the midpoint of its December-to-June rally (approximately 81.40) in early of the week and it marked a total nine percent loss.
Over the past two-months, the US Dollar depreciation can largely be largely attributed to a ‘price correction’ effect but the six-month uptrend preceding the June reversal developed well before the negative turn in risk appetite and the fundamental deterioration behind the European Union (the most prominent threat to global financial stability since the US housing collapse). This could be due to excess premium built into the US Dollar as reserve currency that could easily dissipate as soon as the trend was broken and risk appetite enlivened.
By Friday, The US Dollar dropped to as low as 80.08 before closing at 80.41 as poor non-farm payroll report intensified speculation that Fed will re-start the quantitative easing program in this week's meeting.
Most technicians viewed fall from 88.70(June High) is merely a correction to rise from 74.19 only and should be contained by 80 psychological level. However, the previous weeks downside acceleration at such stage and the bullish outlook in EUR/USD and GBP/USD made this view very vulnerable.
The overall weakness in US dollar caused an appreciation in Asian currencies including the Ringgit. The South Korean Central Bank was very busy this week to contain the rampant appreciation of the won against the US dollar.
The strengthening of Asian currencies could also be attributed by international investors flocking back into Asian markets with higher yielding currencies. 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.
In other words, the ringgit has been on riding up on this wave of foreign money coming into the market rather than the uninspiring local economic performance.
On the daily chart of USD/MYR (see the above chart), the pair has breached the previous low of 3.1701 (26/4) and consolidating at T1 in early of the weeks. On Friday, the pair broke that level and approaching the T2 level at 3.1341.
