Posted by kk123 > 2016-11-13 22:38 | Report Abuse

http://www.thestar.com.my/business/business-news/2016/11/12/rumpus-on-ringgit/ Business News Home > Business > Business News Saturday, 12 November 2016 Rumpus on ringgit BY JAGDEV SINGH SIDHUandFINTAN NG Currency chaos: A worker at a money changer in Kuala Lumpur holding US dollar notes while dealing with his client. Confusion and the lack of clarity on what the ringgit was trading at sent the spread between the ringgit non-deliverable forward market and the spot market further apart to the largest since April 2008.   IT was an odd morning yesterday when the value of the ringgit against the US dollar appeared stuck for some time. The ringgit, which has been pounded the past couple of days since Donald Trump won the US presidential election, seemingly was not moving up or down. In time, word got around that traders were not providing transaction data or conducting ringgit transactions offshore. Furthermore, the ringgit was trading on a tight band based on a reference price of Thursday’s close against the US dollar. The uncertainty created much volatility on the ringgit-dollar non-deliverable forward market where the prices swung throughout the day. Foreign investors who have been waiting for a quote on the ringgit were stumped when none was forthcoming after the market opened. Confusion and the lack of clarity on what the ringgit was trading at sent the spread between the ringgit non-deliverable forward (NDF) market and the spot market further apart to the largest since April 2008, reports say. The value of the ringgit NDF at RM4.54 was the lowest against the US dollar in 12 years. Furthermore, those wanting the buy physical US dollars from money changers were faced with gyrating and high values. “The dollar rates changed about four to five times in a day and the spread between the buying and selling price was the widest I have seen,” says a money changer. For those watching the ringgit’s movement against the US dollar, the fluctuations were causing anxiety. Deep uncertainty over how US President-elect Donald Trump will act on economic and trade policies, coupled with investors adjusting their portfolios on expectations of US fiscal spending, hit the capital markets of the emerging economies yesterday. The ringgit at one point slumped to a low of 4.411 against the US dollar in intraday trade and 5.548 against the pound sterling. The ringgit closed at 4.341 to the US dollar yesterday. On Tuesday, it closed at 4.201. The 10-year Malaysian government securities yields rose to 3.969 from 3.654 on Wednesday, indicating that investors have been selling. But the ringgit was not the only emerging market currency that felt the brunt of the selldown. The Indonesian rupiah too took a hit with a large fall against the US dollar. Most believe that US interest rates are on the way up as fiscal spending on infrastructure will lift inflation in the US, and interest rates will follow. With US rates going higher, hot money had chosen to leave emerging markets, hence sending markets and currencies in many emerging markets downwards. Dealing with NDF market Bank Negara governor Datuk Muhammad Ibrahim says at a briefing on the country’s third-quarter economic and financial developments that there will be “no pegging” of the ringgit despite the currency’s slump in recent days. “It’s very important to allow the market to decide the level of the ringgit,” he says. That is the ideal but should markets become volatile, then it is incumbent on the central bank to step in. “The ringgit should not be determined by speculative positioning and in this respect, the non-delivery forward market is actually made for speculative positioning,” Muhammad says in answer to a question on whether or not the central bank has directed banks to freeze all derivatives and spot transactions in the wake of the ringgit’s slide. “In some circumstances, the ringgit will be volatile and it is incumbent upon the central bank to basically show its presence in the market by asking banks to price the currency correctly so that it will not be out of sync with the market fundamentals,” he says. Bank Negara in June announced that it intends to change the US dollar/ringgit reference rate where under the new methodology, the reference rate will be known as Kuala Lumpur USD/MYR Reference Rate.