Ringgit And US Dollar

The US Dollar Index (USDX) is an index or measure of the value of the United States dollar relative to a basket of foreign currencies(the euro(EUR), Japanese yen (JPY), Pound sterling (GBP), Canadian dollar (CAD), Swedish krona (SEK) andSwiss franc (CHF).

The chart below is a weekly US Dollar index since July 2005. It clearly depicted that US dollar was in despaired from third quarter 2005 to March 2008.

The next chart show the daily movement of US Dollar Index from October 2007.
It indicates that the dollar went sideway from March 17 to end of July 2008. Technically, a classic W bottom or double bottom was formed indicating a reversal of price trend.

It was widely speculated that the reversal of dollar downward movement was initiated through currencies intervention by US, European and Japanese governments to check the downward slide of the dollar. The intervention was partly helped by the Chinese government forcing its commercial banks to hold more dollars and also by a huge buying American treasury bills by foreign central banks, especially the Chinese and the Middle Eastern Countries. It was reported that in August, the increase in Treasury bill buying far exceeded that which is needed, to offset the huge U.S. trade deficit. The Treasury bill buying happened right before the value of the U.S. dollar started surging.

At the dollar gained a momentum upwards of its own in August despite the first sign of the credit crisis, people who were previously short, and “stopped out”, decided that the wind was blowing in favor of the dollar. These opportunistic speculatos converted their funds to go long on the dollar and short on euros, yen, and whatever

EURUSD WEEKLY

GBPUSD WEEKLY

USDJPY WEEKLY

USDSEK WEEKLY

From the above weekly charts which are the charts of Euro against USD (EURUSD), UK Pound against USD (GBPUSD), USD against the Japanese Yen (USDJPY) and USD against Swedish Krona (USDSEK) by March the dollar stalled and reversed its direction by end of July. With the exception of the Yen all currencies continued its reversed direction.

And The Ringgit moved in similar fashion. From March to June the Ringgit formed a cup and saucer pattern.

USDMYR

Let us examined what financial disaster is unfold in March?.

In March 2008, the Federal Reserve Bank of New York provided an emergency loan to Bear Stearns to avert a sudden collapse of the company. The company could not be saved, however, and was sold to JP Morgan Chase for as low as ten dollars per share, a price far below the 52-week high of $133.20 per share, traded before the crisis, although not as low as the two dollars per share originally agreed upon by Bear Stearns and JP Morgan Chase on March 17, 2008. This is when the start of the bull run of the dollar.

The dollar moved upward uninterrupted until September and corrected itself upon The US Government takeover Fannie Mae and Freddie Mac in September 2008.

On Sunday, September 14, it was announced that Lehman Brothers would file for bankruptcy after the Federal Reserve Bank declined to participate in creating a financial support facility for Lehman Brothers.

The same day, the sale of Merrill Lynch to Bank of America was announced. The beginning of the week was marked by extreme instability in global stock markets, with dramatic drops in market values on Monday, September 15,

On September 16, the large insurer American International Group (AIG), a significant participant in the credit default swaps markets suffered a liquidity crisis following the downgrade of its credit rating.

The Federal Reserve, at AIG's request created a credit facility for up to US$85 billion in exchange for an 79.9% equity interest,

Toward the end of the week, short selling of financial stocks was suspended by the Financial Services Authority in the United Kingdom and by the Securities and Exchange Commission in the United States.

From the week of September 15, the dollar and the Yen become a safe-haven currencies as both currencies appreciated against all other countries’ currencies.

-The Yen remains boosted by capital fleeing back to Japan from all major currencies while Japanese investors are keeping capital at home as the Nikkei hits 26-year lows,

- While the dollar enjoyed its safe-haven status of its own, boosted in part by repatriation as U.S. investors flee emerging markets and other overseas investments.

The UK Pound was pounded due to the similar problems that has besetting the US financial industry while the Euro Zone countries have their problems with their banks exposure in Emerging market of Europe and Latin America which is to a greater degree than US banks are exposed to the sub-primes.

As for the ringgit....against our Southie neighbour, the Aussie Dollar. We can get about One Aussie Dollar for RM2.20 as against RM3.10 three months ago.