USD/MYR seen to trade at 4.20 by year-end, risks tilted to downside: Commerzbank

The USD/MYR currency pair is expected to trade at 4.20 by the end of this year, with risks tilted to the downside, according to the latest research report from Commerzbank.

The latest inflation reports for Singapore and Malaysia continue to point to a subdued inflation environment. This is in fact the trend for Asia in general apart from the Philippines. For example, in October, headline inflation in Singapore and Malaysia ticked up slightly to 0.7 percent and 0.6 percent y/y respectively and year-to-date, they have averaged just 0.4 percent and 1.1 percent respectively.

For next year, the forecasts are also for a only mild uptick inflation. If oil prices stay low after the recent plunge, this will also help to contain inflation pressures. In terms of implications for monetary policy, there is no urgency for Bank Negara Malaysia (BNM) to hike rates anytime soon, the report added.

In fact, Malaysia’s central bank is expected to hold rates steady at 3.25 percent for at least H1 2019. For Singapore, the central bank tightened policy only slightly in the October meeting but SGD has not strengthened markedly since then. Instead, USD/SGD has continued to trade sideways, between the 1.36-1.39 range since July.

"We see it at the upper end of this range by year-end at 1.39. For USD/MYR, it has drifted higher over the past five months from around the 4.00 level on concerns over the government’s finances and more recently, the sharp drop in oil prices," the report commented.