USD/MYR likely to consolidate between 4.12-4.20 in near term, says Commerzbank

The USD/MYR currency pair is expected to consolidate between 4.12-4.20 in the near term, according to the latest report from Commerzbank, besides, the Bank Negara Malaysia (BNM) staying on hold for at least the first half of 2019.

Bank Negara Malaysia (BNM) left rates unchanged as expected at 3.25 percent on Thursday and gave few hints of a change in the status quo. Headline inflation has eased back throughout the year since the peak in Q4 2017 and the economy is performing well supported by continued strong domestic demand.

For example, inflation has stayed below 1 percent for the past four months and averaged just 1.2 percent in the first three quarters of the year. This is below the 1.5-2.5 percent forecast for 2018 and is only expected to tick up modestly to 2.5-3.5 percent in 2019.

On growth, the government is projecting a decent pace of 4.8 percent this year and 4.9 percent in 2019. A blowout in the fiscal deficit was a risk for MYR but this was largely brushed aside by the markets. The fiscal deficit for 2018 was revised up sharply to 3.7 percent of GDP last week from 2.8 percent originally due to the debts related to 1MDB.

"The government is forecasting a gradual drop to 3.4 percent in 2019 and then 3 percent in 2020. USD/MYR took the budget revisions in its stride and is still holding around the 4.1700 level," the report commented.