Hedge risky MYR with swaps against uncertainty in global economies

As BNM (Bank Negara Malaysia) will pronounce its next monetary policy decision on 7th May. We look ahead for overnight policy rate (OPR) to remain unchanged at 3.25%. The central bank detached the word "appropriate" from its monetary policy statement which was released on 15 March replacing it with "supportive" to describe its monetary policy stance. The rate was last raised in July 2014. It also appeared to be comfortable with its current growth and inflation outlook at the annual briefing on 11 March.

We suppose it has taken a wait & watch approach, but that it is more concentrated on growth. We envisage inflation to have picked up in April on GST implementation, but to take a backseat to the growth outlook.

The recent volatility in the Malaysian ringgit has been frightening and has added to concerns about a negative view of the local currency. But is this volatility here to stay and what's the general outlook of the ringgit against some hard currencies, say supposing US dollar?

Derivatives insights:

Currently USD/MYR is trading at 3.5989 on spot mkt, but is the 3.59 level per US dollar level sustainable?

The ringgit will have to hover between 3.50 and 3.60 against the greenback in the medium term. The weakness in the dollar is the main reason for the recent strength in the ringgit, thus this is not a genuine recovery in ringgit.Those international traders with heavy US dollar exposure can enter into six to twelve month's swaps of against any hard currency.

Why hedging with swaps..? With hedging so expensive, it becomes more viable for companies not to do it as they can book the early profit while their peers who hedge book it as a cost. For an instance, the INR's one month onshore implied yield a measure of expected interest rates and fluctuations used to price the forwards that companies use to hedge against exchange rate losses. Option premiums are also directly proportional to intrinsic value but any economic boiling bubble may distract all calculation of weaker currency which in turn makes options premiums unpredictably spike up.