Malaysian ringgit likely to appreciate in 2020

The Chinese and U.S. economy stay on track for signing a phase one trade deal in January, which will sustain a risk-friendly mood into the year of 2020, noted Scotiabank in a research report. Moreover, a 50 basis point reduction in the SRR Ratio effective from 16 November will boost local equities and bonds further, prompting more portfolio inflows and the MYR strength. In the meantime, oil prices would stay resilient with an upward potential in the midst of easing U.S.-China trade tensions and deepened oil output cuts that were announced on 6 December.

The OPEC and non-OPEC nations will be holding a meeting in Vienna on 5-6 March to review the policy. Furthermore, Brent oil prices have been in “backwardation” since February 2019, with near-term prices higher than those for delivery in the future.

The oil curve backwardation is likely to hold, suggesting that inventories are expected to keep falling and then lead to higher oil prices in the future.

“As Malaysia is the sole net oil exporter in the region, booming oil prices are generally supportive of the MYR in our view. We maintain our short USD/MYR position with an initial target of 4.12 and then 4.10. The MYR would certainly advance further should the yuan gain more in early 2020”, added Scotiabank.