Q2 GDP contraction pulls ringgit lower against US dollar

At 6pm, the local currency was traded at 4.1910/1950 from 4.1880/1930 at yesterday’s close. — Reuters pic
At 6pm, the local currency was traded at 4.1910/1950 from 4.1880/1930 at yesterday’s close. — Reuters pic

KUALA LUMPUR, Aug 14 — The ringgit closed lower against the US dollar today after revisiting its recent high yesterday due to the steep contraction in the country’s second-quarter (Q2) gross domestic product (GDP) announced earlier today.

At 6pm, the local currency was traded at 4.1910/1950 from 4.1880/1930 at yesterday’s close.

However, a dealer said the decline was cushioned by a report which stated that the United States’s Federal Reserve is anticipating the US industrial production to weaken to three per cent in July from 5.4 per cent in June.

Separately, AxiCorp chief global market strategist Stephen Innes said against the backdrop of the US-China trade talk risk which is not far from the mind, traders were taking a cautious approach to all risks and expected the ringgit to skew defensively.

“Besides, given the poor Q2 GDP data, this should encourage Bank Negara Malaysia (BNM) to cut interest rates sooner than later, which I think would encourage more bond inflows,” Innes told Bernama.

When announcing the Q2 GDP figures today, BNM governor Datuk Nor Shamsiah Mohd Yunus noted that the equity and ringgit volatility would continue as the capital market remains sensitive due to lingering concerns.

“So far, the ringgit has seen an appreciation and the equity market has improved due to demand by domestic investors,” she said.

Malaysia’s GDP in Q2 2020 saw a sharp contraction of 17.1 per cent, the first double-digit contraction recorded since Q4 1998, as the country went into a lockdown with strong enforcement to stem the spread of Covid-19 disease.

In the second quarter of 2019, Malaysia recorded a GDP growth of 4.9 per cent.

Despite the downturn, BNM is optimistic that the economy is expected to see gradual improvement in the second half of this year, before recovering fully next year with an expected growth of between 5.5 per cent and 8.0 per cent.

Meanwhile, the ringgit was traded mixed against a basket of major currencies.

The local unit strengthened versus the Singapore dollar to 3.0518/0554 from 3.0523/0570 but depreciated vis-a-vis the yen to 3.9260/9308 from 3.9184/9242 yesterday.

The ringgit fell marginally against the British pound to 5.4785/4854 from 5.4783/4865 yesterday but appreciated against the euro to 4.9416/9472 from 4.9552/9628 previously. — Bernama

Related Articles