● Bank Negara Malaysia (BNM) international reserves remained on anuptrend for three straight months, increasing by USD0.5b or 0.4% MoM to match a 5-month high of USD103.4b as at 30 June 2020

- Sufficient to finance 8.3 months of retained imports and is 1.1 times the total short-term external debt.

● Higher foreign reserves attributable to an increase in gold, foreign currency reserves and IMF reserve position

- Gold (+USD0.2b or 8.9% MoM to USD2.2b): matched the fastest pace of increase in over one year on a surge ingold prices, reflecting a rush to safety.

- Foreign currency reserves (+USD0.1b or 0.1% MoM to USD96.6b): highest level in four months.

- IMF reserve position (+USD0.1b or 8.9% MoM to USD1.3b): fastest expansion in 14 months.

● In Ringgit terms, the value of BNM reserves declined for the first time in four monthsby RM2.7b or -0.6% MoM to RM443.1b

- USDMYR: traded at an average of RM4.27 in June (May: RM4.34), appreciating by 1.5% MoM (May: 0.3%) on continued recovery in oil prices (USD40.8/barrel; May: USD32.4) and rising risk appetite amid the progressive reopening of economic activity in various countries.

- Regional currencies (monthly average): broad-based appreciation against the greenback, led by Indonesian Rupiah (5.0% MoM), followed by Thai Baht (3.0%), and Singapore Dollar (1.7%) and Philippines Peso (0.9%).

● BNM’s dovish statement suggests further monetary easing

- The 25 bps reduction of the overnight policy rate (OPR) yesterday and the dovish tone derived from its monetary policy statement, which noted a broad-based slump in the labour market and hampered confidence level, indicated that the BNM may embark on another 25 bps cut, bringing the OPR to a fresh record low of 1.50% at the next policy meeting in September.

- USDMYR year-end forecast (4.30; 2019: 4.09): A relatively weak global oil price, elevated geopolitical tension between major economies (e.g. US-CN-HK), fears over a second wave of COVID-19 infections, and worsening domestic political tussle are expected to trigger a risk-aversion, weighing on the performance of the ringgit.

Source: Kenanga Research - 8 Jul 2020