KUALA LUMPUR, July 1 — The ringgit averaged at 4.25 against the US dollar in the first half of 2020 (H1 2020), depreciating by 3.2 per cent from an average of 4.12 recorded in H1 2019.
The main reason for the ringgit depreciation was Covid-19, which caused disruptions in the global supply chain and induced a flight to safety.
Globally, Covid-19 cases has reached 10.59 million including 514,082 deaths. MIDF Amanah Investment Bank Bhd economist Mazlina Abdul Rahman said the lower interest rates resulting from the overnight policy rate (OPR) cuts added to the depreciation.
Bank Negara Malaysia (BNM) cut the OPR three times in 2020 to 2.0 per cent, its lowest rate in over a decade.
“On top of that, we saw oil prices nosedive due to the oil price war between Saudi Arabia, Russia and the US, which caused the ringgit to breach the 4.40 level and was under continuous pressure for some weeks,” she told Bernama.
In March, oil prices plunged to an 18-year low as the number of Covid-19 cases worldwide surged, with Brent tumbling to as low as US$21.65 per barrel and West Texas Intermediate (WTI) falling below US$20 per barrel.
On April 20, WTI dropped by almost 300 per cent to trade at around negative US$37 per barrel.
“The year started on a very upbeat tone for the ringgit after the signing of the US-China phase one trade deal, which was very bullish for Asian currencies, but this time the market was sideswiped by the prophet of doom in the form of Covid-19,” AxiCorp global chief market strategist Stephen Innes added.
In Malaysia, the first Covid-19 case was detected on Jan 24, causing the government to impose the Movement Control Order (MCO) on March 18.
On May 1, the government imposed the Conditional MCO which ended on June 9 and was replaced by the Recovery MCO.
According to Kenanga Research, the ringgit strengthened in June amidst the implementation of the RMCO and the improvement of the Malaysia Manufacturing Purchasing Managers’ Index (PMI) to 45.6 in May from 31.3 in April.
In June, the PMI rose sharply to 51.0, the highest since September 2018.
“However, the gain was cut short as global financial markets turned risk off and investors shifted to safe-haven assets, in particular the US dollar,” Kenanga economic research head Wan Suhaimie Wan Mohd Saidie said.
He said with improving oil prices, the ringgit was expected to marginally appreciate in July.
The ringgit is also expected to gather some strength due to Malaysia’s relative success in containing and managing the pandemic.
“In addition, local trade will benefit from the recovery of global trade and demand for commodity as the world economies re-open.
“However, some uncertainties remain on renewed US-China trade tensions and fears of Covid-19 second wave infections across the globe,” he said in a note.
In May, Malaysia’s inflation, as measured by the Consumer Price Index (CPI), declined 2.9 per cent year- on-year.
MIDF Research has forecast the CPI to record a deflation of 0.5 per cent this year compared to an inflation of 0.7 per cent last year.
The ringgit kicked off 2020 at 4.0880/0930 after ending 2019 at an eight-month high of 4.0890/0920.
It reached the highest level this year at 4.052 on Jan 17, with the lowest level at 4.44 recorded on March 23.
On June 30, the ringgit ended at 4.2825/2875 against the US dollar.
In 2019, the ringgit marginally appreciated against the greenback by 0.65 per cent versus a decline of 2.84 per cent in 2018. — Bernama
