USD/MYR likely to jump to 4.60 by year-end, says Commerzbank

The USD-MYR is likely to jump to 4.60 by end of 2017 from the current level of 4.45. The upside bias for USD-MYR persisting in the near term as Malaysia Ringgit remains vulnerable to further capital outflows, especially if the Fed raises the rate at a faster than expected pace, said Commerzbank in its research note.

In December, Bank Negara Malaysia introduced a slew of measures to promote onshore trading and to stabilise the Malaysia Ringgit. Bank Negara Malaysia Governor Muhammad Ibrahim has indicated that more steps could be taken if need be, they added.

The Bank Negara Malaysia in its first monetary policy meeting of 2017 on Thursday maintained its overnight policy rate (OPR) at 3.00 percent, as it was widely expected. This decision was supported by stronger household demand, higher inflation prospects and weak MYR.

The ANZ in its research note mentioned that the measures that Bank Negara Malaysia implemented have provided some support to the Malaysia Ringgit (MYR) and enhance onshore foreign exchange liquidity. These pre-emptive measures will help stabilise the ringgit and support financial stability by restricting potential avenues for Malaysia Ringgit speculation, thereby ensuring a steady demand for the currency. Details can be found in the Supplementary Notice on Foreign Exchange Administration Rules

Nonetheless, Malaysia is still vulnerable to a stronger U.S. dollar and rising US Treasury yields. High foreign ownership of Malaysian Government Securities means there is a risk of further outflows, and the structural decline in the current account surplus has resulted in the ringgit being more susceptible to capital flows. These dynamics will exert depreciation pressure on the Malaysia Ringgit and constrain Bank Negara Malaysia’s monetary policy space, they added