-  Most regional currencies had depreciated yesterday on speculation of a stronger-than-expected economic recovery in the US.

-  Data on Monday showed that the US consumer credit growth had surpassed estimates in July. Credit grew by USD26bil vs. +USD18.8bil in June.

-  Ahead of the upcoming policy review by the Fed on 16-17 September, the Bloomberg Dollar Spot Index climbed to a 14-month high of 1047.01 points yesterday.

-  Meanwhile, the Ringgit fell yesterday by the most in a week. Ahead of BNM’s monetary policy meeting next week, the currency had depreciated to close at RM3.1933 per USD yesterday (or -0.6% from a day ago).

-  Despite that, we expect limited intervention by BNM in the currency market as Ringgit has been fluctuating in an orderly manner.

-  Note that despite the strong Ringgit currency during the month of August, the overall reserves at BNM had only increased marginally.

-  The Ringgit currency was at RM3.152 per USD at the close of 29 August. Meanwhile, forex reserves at BNM had increased to USD132.0bil (or +0.1% from end-July).

-  This suggests that the Ringgit’s performance during the recent months was mainly driven by market forces following the upward adjustment of the OPR in July.

-  As of YTD August 2014, total reserves at BNM slipped by 2.2% in USD terms (or –USD2.9bil). In Ringgit terms, forex reserves stood at RM424.2bil (or –4.0% YTD).

-  The steeper decline for forex reserves in Ringgit terms compared to the USD denomination was mainly due to the stronger Ringgit currency as at YTD August.

-  The overall reserves position is sufficient to finance 9.0 months of retained imports and is 1.2 times the short-term external debt.

-  Going forth, BNM will continue to maintain a commendable reserves level to ensure an orderly fluctuation of the Ringgit currency.

-  Elsewhere, inflows through trade could have shown a slight increase in August as overall reserves picked up during the month.

-  Note that trade balance had slowed further to the lowest monthly trade surplus recorded so far this year at RM3.64bil in July vs. June’s surplus of RM4.1bil.

Source: AmeSecurities