MARKET DEVELOPMENT
\'Weak CPO Export, Drags Ringgit Down\'
\'Weak CPO Export, Drags Ringgit Down\'
23/07/2013 (Business Times) - The weak recovery in the crude palm oil (CPO) export market could be one of the reasons for the continued weak ringgit position, says Maybank FX Research.
CPO makes up 7.4 per cent of the total exports basket and the value has fallen 30.4 per cent year-on-year in May since March last year.
"The lack of recovery in the exports of the commodity drags the ringgit."
The Singapore-based research house expects the current streak of weakness to be stemmed when CPO prices rebound mildly in the second half as inventory levels in Indonesia and Malaysia fall.
It also expects dollar strength to taper as a modest recovery in global growth towards the end of the year, led by the US Federal Reserve tapering which could happen in October.
"A pick up in global commodity demand should strengthen the ringgit at that point."
It maintains its forecast for the greenback versus ringgit at 3.12 for the third quarter and 3.09 for end-2013, barring certain downside risks from the commodity sector.
According to the research house, the weakness in the ringgit this year follows the trend across Asia with the strength of the US dollar stemming from expectations of the US Federal Reserve's plans to exit from its quantitative easing (QE) scheme.
The ringgit depreciated by 4.15 per cent last week against the dollar, behind the rupiah, Singapore dollar, Taiwan dollar, Thai baht and Chinese yuan.
On the medium-term outlook, it expects the ringgit trajectory to be an upward one.
Fiscal consolidation efforts could boost the ringgit while the upcoming investments in upstream oil projects would enable the oil industry to ride on the likely increase in demand as global growth picks up.
"Strong domestic demand provides a solid fundamental that could boost investor’s fundamental after the world has adjusted to the Fed’s exit of QE. Malaysia’s assets are still attractive and bonds inflow could resume in fervent, boosting its current account surplus.
"Part of its allure could also be attributed to Malaysia's status as the leader in Islamic banking."
The current account, it noted, is still in surplus despite the plummet of commodity demand. It is indeed a show of investors confidence in the country and supportive of the ringgit.
It expects the ringgit to strengthen to RM2.95 by end of 2014, RM2.90 by end-2015 and 2.80 by end-2016.
CPO makes up 7.4 per cent of the total exports basket and the value has fallen 30.4 per cent year-on-year in May since March last year.
"The lack of recovery in the exports of the commodity drags the ringgit."
The Singapore-based research house expects the current streak of weakness to be stemmed when CPO prices rebound mildly in the second half as inventory levels in Indonesia and Malaysia fall.
It also expects dollar strength to taper as a modest recovery in global growth towards the end of the year, led by the US Federal Reserve tapering which could happen in October.
"A pick up in global commodity demand should strengthen the ringgit at that point."
It maintains its forecast for the greenback versus ringgit at 3.12 for the third quarter and 3.09 for end-2013, barring certain downside risks from the commodity sector.
According to the research house, the weakness in the ringgit this year follows the trend across Asia with the strength of the US dollar stemming from expectations of the US Federal Reserve's plans to exit from its quantitative easing (QE) scheme.
The ringgit depreciated by 4.15 per cent last week against the dollar, behind the rupiah, Singapore dollar, Taiwan dollar, Thai baht and Chinese yuan.
On the medium-term outlook, it expects the ringgit trajectory to be an upward one.
Fiscal consolidation efforts could boost the ringgit while the upcoming investments in upstream oil projects would enable the oil industry to ride on the likely increase in demand as global growth picks up.
"Strong domestic demand provides a solid fundamental that could boost investor’s fundamental after the world has adjusted to the Fed’s exit of QE. Malaysia’s assets are still attractive and bonds inflow could resume in fervent, boosting its current account surplus.
"Part of its allure could also be attributed to Malaysia's status as the leader in Islamic banking."
The current account, it noted, is still in surplus despite the plummet of commodity demand. It is indeed a show of investors confidence in the country and supportive of the ringgit.
It expects the ringgit to strengthen to RM2.95 by end of 2014, RM2.90 by end-2015 and 2.80 by end-2016.