Further weakness in CNY likely to push MYR towards upper end of 4.15-4.20 range, says Commerzbank

Further weakness in the Chinese yuan and other Asian currencies could see the Malaysian ringgit climb towards the upper end of the 4.15-4.20 range, after being back to the 4.15 level, according to the latest research report from Commerzbank.

The USD/MYR currency pair gapped up at the open this morning along with the rest of USD-Asia in response to the negative development on the US-China trade talks. Asian currencies in general are tracking the weaker CNY.

The trade talks are likely to remain front and centre for now but for MYR, a dovish central bank could also accentuate to the weakness. Bank Negara Malaysia (BNM) meets tomorrow and the street is split 50-50, about half are expecting a 25bp rate cut to 3 percent.

The reasons are because of benign inflation which is just above zero in March and modest growth. A rate cut will be viewed as a pre-emptive move and as an insurance policy, particularly if trade tensions re-escalate and dampen trade.

"We suspect other central banks in Asia are also likely to be more cautious given the latest turn of events, including Thailand and the Philippines this week," the report further commented.