China Yuan Reminbi devaluation and FOMC hike to impact MYR

The CNY devaluation added to MYR's woes caused by the ongoing corruption probe into PM Najib and softer commodity prices. At the end of July, foreigners held MYR207bn (USD54.4bn) of debt securities, of which MYR165bn (USD43.5bn) are Malaysian Government Securities (MGS). 

This means that foreigners owned almost 50% of total outstanding MGS (MYR346bn as at end-July). In addition, BNM's foreign reserves at end-July stood at USD96.7bn, which should only be twice the amount of foreign holdings of MYR assets. 

"For this reason, the potential Fed hike in September makes the MYR susceptible to further depreciation. The USD/MYR is expected to hit 4.20 by the end of September, after which it should stabilise lower on the back of the resolution of the political situation and a steady rise in commodity prices", says Credit Agricole.