It was an excellent week for the Ringgit as the regional tone, despite the overhang from Geopolitical concerns, has remained buoyant while risk sentiment rocketed higher follow the French Elections first ballot. Investors are likely to feed on this supportive environment for riskier assets, and local investors sentiment should remain supportive following the second round of elections. I say this with caution as the markets will continue to tussle with the plethora of Trump headlines, which could buckle confidence at any moment.
There has been a definite shift in sentiment after the BNM’s timely move to increase liberalisation in the foreign exchange markets. After last month’s massive volume of MGS bond outflows, the writing was on the wall, and the BNM made tremendous efforts to reassure foreign investors that Malaysia was indeed open for business and was actively moving to greater liberalisation of onshore market. It seems to have worked, as outflows have dropped to a trickle while the currency has shown signs or appreciating.
Also, the lead weight from the 1MDB scandal that rocked investor confidence back in 2015 appears to be coming to an investor friendly conclusion. Malaysia’s finance ministry and 1MDB had agreed to pay $1.2 billion to the Abu Dhabi fund by the end of the year as part of an agreement overseen by an arbitration panel in London.
Next week could offer some challenges with the FOMC on tap. With so much priced out of Fed policy this year, the only real surprise in my view would be a more hawkish lean from the Fed than the market expects. But with the likelihood of only two rate US rate hikes this year, I don’t think this will pose too much of concern to local sentiment and in particular, the Malaysia capital market which is arguably undervalued compared to its ASEAN counterparts.
While I expect the all too familiar oil markets balancing act to remain front and centre, one of the negatives I view for the Ringgit is that there remains a risk for weaker oil prices as we move through 2017 due to constant supply coming from shale oil producers.
At the end of the day, investor positioning in the MYR is light, which suggests that the Ringgit has room to strengthen palpably by next week; even more so if USD momentum loses steam on underwhelming Trump policy.