KUALA LUMPUR (Nov 14): As Malaysians head to the polls this Saturday (Nov 19), the currency market is no short of excitement of its own, with the ringgit staging a strong rebound of 2.3% in the past two trading days.

Ahead of the 15th general election (GE15), the local currency strengthened past the 4.60 level, touching a high of 4.592 against Friday (Nov 11)’s close of 4.6200, driven by stronger-than-expected 3Q economic growth and a slight easing of the greenback after a milder expansion in the US Consumer Price Index (CPI) reading for October.

The local currency has appreciated 2.64% against the US dollar since last week. The last time it traded above the 4.60 level was on Sept 23 at 4.5787.

“While Malaysia’s stronger-than-expected 3Q gross domestic product (GDP) growth of 14.2% year-on-year helped lift the ringgit’s strength against [the] US dollar, the US dollar index has taken a brief pause, following the better US CPI reading for October,” Socio-Economic Research Centre (SERC) executive director Lee Heng Guie told The Edge.

On Friday, Bank Negara Malaysia announced that the 14.2% economic growth was underpinned by continued expansion of domestic demand, a firm recovery in the labour market and income condition amid normalising economic activity, as well as ongoing policy support.

The US Labour Department, meanwhile, reported that its CPI increased 7.7% year-on-year in October, down from the 8.2% growth in September. In June, it hit a high of 9.1%. Market expectations are that the US Federal Reserve (Fed) will hike the Fed fund rate by a smaller quantum of 50 basis points (bps) in December, compared to previous four hikes of 75 bps each, said Lee. The Fed fund rate stands at 3.75% to 4.25% currently.

The Fed governor Christopher Waller on Sunday (Nov 13) hinted that the Fed would consider slowing the pace of rate increases at its next meeting, Reuters reported.

“We’re at a point where we can start thinking maybe of going at a slower pace, but we’re not softening. Quit paying attention to the pace and start paying attention to where the endpoint is going to be. Until we get inflation down, that endpoint is still a way out,” he said at an economic conference organised by UBS in Australia.

Alex Kuptsikevich, a Cyprus-based senior market analyst with FxPro UK Ltd, said in a statement that the Fed’s willingness to lower the rate hike could be interpreted as the dollar rally has aged too much.

“The dollar rally triggered by Fed policy has aged too much, and both Fed officials and market reaction on Friday indicate that the dollar is entering a new phase of the global cycle,” he noted.

Thomas Yong, CEO of Fortress Capital Asset Management Sdn Bhd, said the recent strength in the ringgit has been due to the retracement of the US dollar.

“The US dollar has gained significantly against all major currencies since US interest rate hikes due to portfolio flows and reversal of cheap US dollar financing that is no longer the case. Once these knee jerk-reactions are done, demand for US dollars will revert to normal transactional demand levels,” he told The Edge.

Notably, the ringgit’s gain of 1.59% seen on Friday was the highest since March 2016.

The local currency also traded positively against a basket of other major currencies on Monday (Nov 14), with gains of 0.36%, 0.25% and 0.19% to 3.3405, 5.4187 and 4.7380 against the Singapore dollar, British pound and euro, respectively. It also strengthened 0.94% against 100 Japanese yen.  

The Asian Dollar Index retreated marginally to 98.98 on Monday, from 99 last Friday.

As the Fed is likely to pivot sooner than previously anticipated, MIDF Research expects the ringgit to end stronger at RM4.52 by end-2022.

Having said that, the research house pointed out that the decline in oil prices has limited the ringgit’s appreciation, as Brent crude oil fell 1% to US$95.99 per barrel.

The greenback also depreciated against regional currencies on Monday, including the Thai baht (-0.27%), the Chinese yuan (-0.21%) and the Taiwan dollar (-0.67%).

However, it appreciated against the Korean won (+0.58%), the Philippines peso (+0.02%), the Indonesian rupiah (+0.16%), the Indian rupee (+0.56%), as well as the Singapore dollar (+0.31%).

Meanwhile, the easing of China’s stringent Zero-Covid-19 policy has also sparked market optimism, according to Vincent Lau, head of equity sales at Rakuten Trade.

“The move is generally cheered by financial markets, although Covid-19 cases have not really reached a desired minimum,” he observed.

Another senior broker The Edge spoke to said the impact of the meeting between US President Joe Biden and Chinese President Xi Jinping on the sidelines of the G20 Summit held on Monday will be keenly watched.

“Markets are looking for any clues or positives from this meeting…as China and the US do not see eye to eye on many matters now. But we shall wait and see if there is any common ground between these two behemoth economies,” the senior broker said.