Ringgit among hardest hit in markets' “Trump tantrum”

© Provided by MToday News Sdn Bhdringgit-malaysia

KUALA LUMPUR: The ringgit, among the hardest hit in the market’s “Trump tantrum” after the surprise US election outcome, is likely to continue tumbling, according to a CNBC report.

The dollar has climbed as much as 5.8 per cent against the ringgit so far in November.

The report noted that emerging market assets had tumbled in general in the wake of president-elect Donald Trump’s upset win as the dollar surged and US Treasury yields jumped.

This hurts the ability of companies to service dollar-denominated debt and spurs outflows from the segment on the prospect of higher, less-risky returns on Treasurys.

Additionally, said the report, markets have been pricing in Trump’s aggressive rhetoric on curtailing global trade with the US, which was likely to disproportionately hurt trade-dependent emerging economies.

On Monday, the dollar was fetching as much as 4.4300 ringgit, the highest in more than a year and flirting with levels last seen during the Asian Financial Crisis in 1997, CNBC said.

This caused Bank Negara Malaysia to intervene in the market to support the ringgit.

The CNBC report quoted analysts at Macquarie as saying that this was an indicator of more pain to come.

In addition to stepping directly into the foreign-exchange market, Bank Negara had also warned banks to restrict trading in offshore non-deliverable forwards (NDFs) on the currency, which had fallen further than the spot rate.

“Bank Negara Malaysia’s admission on Friday that it is currently intervening in the foreign-exchange market shows that the selling pressure on emerging market foreign exchange is even worse than the price action suggests,” Macquarie said in a note on Monday.

“The ringgit move has been rather sharp and this is partly due to the fact that it’s one of the more globalised financial markets, especially the bond market,” Trinh Nguyen, senior economist at asset manager Natixis, told CNBC’s “Squawk Box” on Monday.

Meanwhile, James Chin, director of the Asia Institute at University of Tasmania, thinks it is possible that the dollar will rise as high as RM5.

He said the resulting price hikes from such a drastic drop in the Malaysian currency could possibly shake the government.

“A lot of the consumer items that you buy in Malaysia are actually imported. And for almost all the imports, the currency they use is the US dollar. So, at RM5 to USD1, almost everything in Malaysia will go up by 20 per cent.”

He said Prime Minister Najib Razak’s “ability to remain in office could be shaken because the currency’s weakness would dent the finances of the wealthy along with the rest of the population”.

“The ringgit can go down very fast and it all depends on the herd mentality in the markets,” Chin told CNBC.