UOB: Ringgit on uptrend rally on positive US-China trade relations

A Malaysia Ringgit note is seen in this illustration photo June 1, 2017. — Reuters pic
A Malaysia Ringgit note is seen in this illustration photo June 1, 2017. — Reuters pic

KUALA LUMPUR, Jan 21 — The ringgit has continued its rally along with other Asian currencies on the back of positive US-China trade relations, making it the third best performing regional currency to date.

United Overseas Bank (UOB) in its global economics and market research macro note today said that the ringgit has risen 0.9 per cent against the US dollar to an 18-month high of 4.05 yesterday (Jan 20).

“While most of the positives have taken place, we think the ringgit may have room to run further in the near term as the currency plays catch-up after the muted performance last year.

“Foreign flows returned to Malaysia’s bond markets in November-December 2019 which brought full-year inflows to a six-year high of RM19 billion. The current account surplus is expected to widen to 3.5 per cent of gross domestic product in 2019 compared with 2.1 per cent on 2018,” it said.

It added that gross foreign direct investment flows are projected to hit RM120 billion to RM130 billion for 2019 while the local currency’s current estimate against the greenback fair value is 3.90.

“Key re-rating catalysts for Malaysia’s markets and the local note include clarity on political succession, positive outcome from FTSE Russell’s review in March 2020, and a surprise upside in the economy should government spending recover and investment realisation accelerate,” it said.

On the economic side, the bank noted that the local economy remains cautiously optimistic, with turn-around signs having emerged despite concerns over waning growth momentum and persistent downside risks.

“The manufacturing activity index or PMI improved in November-December 2019 following the announcement of the US-China Phase One deal that lowers tariff rates for US$110 billion (RM447.6 billion) of Chinese goods to the US and prevented an escalation of tariffs.

“The headline PMI rose to a 15-month high of 50.0 in December amid further gains in output and new orders,” it said. — Bernama

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