Apr 20, 2010

Strengthening Ringgit - Situational vs Sustainable

2358-48-20090418114532 Ringgit rallied on “situational shifts”…  Ringgit’s rise in recent weeks was sharp and somewhat unexpected, although the current uptrend actually began back in early Feb.  YTD (up to 16 Apr), Ringgit has gained 7.2% versus USD.  The advance so far this year was also broad-based i.e. against other major currencies and regional counterparts.  Consequently, the Ringgit’s nominal effective exchange rate (NEER) – the trade-weighted basket of key trading partners’ currencies – surged by 7% in the first 3½ months of 2010.  Ringgit's gains was driven by "situational factors" like simple arbitrage opportunities from interest rate gaps, stronger than expected economic rebound this year, announcement of market-centric and investors' friendly measures at IM2010 and Ringgit-positive regional developments such as Thailand's political turmoil and expectations of an imminent change in China's exchange rate policy.  We failed to see any "fundamental shift" in Ringgit.  There's nothing new about Malaysia's existing fundamentals like trade/current account surplus, large external reserves and high savings rate.  The New Economic Model (NEM) is still "work-in-progress" and its impact on the Ringgit we believe crucially depends on implementation and execution of NEM. Consequently, our year-end target for RM/USD stays at RM3.20-RM3.30.

source: Maybank Investment Bank