Highlights

• The ringgit has been depreciating since last week. On average, the ringgit was trading around 4.20 in March 2022. As of today, the currency was down to 4.28 (+7.0% vs. March 2022)

• Part of the weakening of the ringgit was due to the strengthening of the dollar itself, driven by the aggressive rate hikes expectations with the May hike expected to be at 50bps and could continue rising for the following two FOMC meetings.

• Also, the large-scale quantitative tightening (QT) of US$95bil a month further added to the strengthening of the dollar.

• The QT is expected to cause a reversal fund flows from the EM markets, including Malaysia. Foreign equity flows into the KLCI have been in net buying position until recently. But since 12 April 2022, the KLCI has been seeing foreign net outflows since with a net selling of RM38bil. This is in tandem with the MSCI Emerging Index that has been declining quite substantially since 21 March 2022.

• Besides, the ringgit’s trend is also in line with the yuan weakening against the dollar. The yuan depreciated due to structural issues (zero-Covid policy, weak growth prospects, supply chain disruption). Also, it is believed that there has been some squaring in the foreign market.

• Our ringgit outlook against the USD in the near term has more upside to hover around the 4.30–4.33 levels.

• However, strong crude oil prices continue to support the ringgit. That should provide some buffer to keep the ringgit within the 4.30 levels in the near term.

Source: AmInvest Research - 22 Apr 2022