Monday 02 Oct 2023
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KUALA LUMPUR (June 18): The ringgit slid to a five-month low from Jan 11 to 4.0015 against the US dollar amid pressure from external headwinds including the recent US Federal Reserve rate hike, US-China trade tensions and dip in petrol prices.

At press time, the ringgit had strengthened 1.18% to 3.9973 against the US dollar whereas Brent futures dipped 1.09% to US$72.64 per barrel while the West Texas Intermediate fell 1.92% to US$63.81 per barrel.

Last Thursday (June 14), Reuters reported that the US reserve announced a 0.25 percentage point hike to 2%, the seventh rise from near zero rates since late 2015.

It quoted Federal Reserve chairman Jerome Powell as saying that the economy was doing well, unemployment and inflation were low and the overall outlook for growth remained favourable.

DBS Bank Ltd foreign exchange strategist Philip Wee and rates strategist Eugene Leow said Asian currencies are facing depreciation pressures on two major fronts.

"First, monetary policy divergences have returned to support the US dollar globally. The Federal Reserve has affirmed that it will be moving to deliver a total of four, not three, rate hikes this year. The European Central Bank has confirmed that asset purchases will end in December, forcing markets to reverse earlier bets for the central bank to bring forward its rate hike into 2019," they said in a note today.

"Second, the US-China trade tensions have returned despite a better-than-expected outcome at the North Korean President Kim Jong-un and US President Donald Trump summit. For first time in half a year, Asia's export-dependent currencies, the Singapore dollar and Korean won, depreciated past 1.35 and 1,100, respectively.

"As for the region's three strongest currencies this year, the Thai baht has begun to depreciate for the year last week, with the Chinese yuan, and ringgit set to follow next," Wee and Leow added.

Meanwhile, foreign exchange trader Oanda Corp head of trading for Asia Pacific Stephen Innes opined that the ringgit would not be able to escape the US dollar 'wrecking ball' and oil prices perched precariously ahead of the Friday's Organisation of Petroleum Exporting Countries (OPEC) meeting.

"(The) positives are far and few between for the beleaguered ringgit these days," he added in a note today.

Innes found no break for Asian currencies as more hawkish Federal Reserve and a stronger dollar is adding to the expanding wall of worry for these currencies.

"As if Asia emerging-market investors didn't have enough to worry about with trade war on the brink of escalation and global growth concerns back in focus, the US dollar clocked up considerable gains (last) Friday, and nothing scares local investor more than a stronger dollar," he added.

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