PETALING JAYA: The ringgit may face selling pressure, bearing the brunt of the US Treasury Department’s surprise decision to place Malaysia on its watch list for currency manipulation.
The local unit strengthened slightly to 4.1960 against the greenback today.
According to PublicInvest Research, the US could also raise the heat on affected countries especially if the trade imbalance has not improved after some time.
“The US could apply the same pressure against China (import tariff) which may in turn affect our export momentum and hence, our trade surplus,” it said in its report today.
“On the flip side, competitive ringgit could be a boon amid our diversified exports that could provide the needed support. Malaysia’s fundamentals remain strong driven, by a broad-based and diversified economy, providing long-term support to the ringgit. In the immediate term though, it could face some selling pressure as a result of this unexpected shock,” it added.
In response to the US Treasury Department’s move, Bank Negara Malaysia (BNM) stressed that it does not undertake unfair currency practices and believes that the Malaysian economy will not be affected by its inclusion in the watch list.
“We concur with BNM that Malaysia remains a proponent of a fair and open trade and does not engage in currency manipulation. Our trade surpluses have remained steady and rising since the 1980s ever since Malaysia embarked on an economic transformation to become a manufacturing power house,” said PublicInvest Research.
“There is scant evidence of currency manipulation given our small forex reserve levels (2018: US$103 billion) compared to daily global forex transactions valued at US$1.3 trillion (RM5.45 trillion). Therefore, currency manipulation to keep ringgit competitive may not last long especially when market forces are much stronger and bigger for that matter,” it said.
It added that the ringgit could be influenced more by global macro conditions or, notably, interest rate movements in advanced economies.
UOB Global Economics & Markets Research said that any ringgit weakness in the near term is more likely due to the trade uncertainty as the US mulls imposing further tariffs on China’s goods exports to the US.
This, coupled with the Huawei ban and other looming US actions, could affect changes in the global electronics supply chain.
Countries that are placed on the watch list have met two of the three criteria outlined. Malaysia met the first two criteria, which is a significant bilateral trade surplus with the US of at least US$20 billion or 0.1% of US GDP and a current account surplus of at least 2% of GDP.
“However, the report did not find evidence of persistent, one-sided intervention over the last few years. As such, we do not think that this should warrant further action from the US Treasury to label Malaysia a currency manipulator in its next report in Nov/Dec 2019.
“This is premised on Malaysia meeting only two of the three criteria. The US Treasury also acknowledges Malaysia’s narrowing current account surplus over the past decade, Malaysia’s external rebalancing in recent years and encourages further measures to support this trend,” said UOB.
