Ringgit hovers near record lows as yuan slide continues to loom large

Ringgit hovers near record lows as yuan slide continues to loom large

PETALING JAYA - The ringgit continues to hover near record lows as the weakening of the yuan continues to loom large over emerging-market currencies.

As at 6pm yesterday, the ringgit weakened marginally to RM4.4662 against the dollar, compared to RM4.4660 on Tuesday. It is still trading near its lowest point since the Asian financial crisis in 1998.

In a commentary on financial developments yesterday, Bank Negara acknowledged the yuan's downward trend as a contributing factor to the ringgit's weakness.

"The currency's depreciation is due to market expectations of an impending United States policy rate increase by the end of 2016 and concerns over the depreciation of the yuan, leading to a higher risk aversion towards regional financial markets," it said.

As at 6pm yesterday, the yuan was quoted at 6.90 to the dollar, which is close to its lowest in eight years. It had fallen to as low as 6.95 on Nov 23.

The continued strengthening of the dollar also had a major impact on the Chinese currency, as the market prices in expectations of a fiscal stimulus plan by US president-elect Donald Trump, as well as the expected interest rate hike by the Federal Reserve in a meeting this month.

To stem capital outflows, which have put pressure on the yuan, China's authorities have begun vetting transfers abroad worth US$5mil or more and are actively scrutinising outbound deals, Reuters reported on Tuesday.

The People's Bank of China had previously indicated that it intends to guide the yuan lower in a bid to support the economy and reflect actual demand in the free market for the tightly controlled currency.

"Trump's protectionism may dampen China's economy in the long run. In addition, he has criticised China for controlling its currency. The yuan is set for further depreciation should the Chinese central bank intervene in the markets less frequently," said Citibank FX Research in a note.

Meanwhile, in a statement yesterday, Minister of Finance II Datuk Johari Abdul Ghani disputed the assertion that the ringgit's decline was due to excessive capital outflows from the country.

Johari pointed out that Bank Negara's latest international reserve figures saw an increase to US$98.3bil as at Nov 15 compared to the US$97.8bil recorded as at Oct 31.

"Whilst the ringgit has indeed depreciated in recent periods due partly to the speculative activities in the offshore market, it has not led to a material decline in Malaysia's foreign-exchange reserves. To the contrary, Malaysia's foreign reserves have been fairly stable throughout 2016 at around US$97bil," he said.

In another report, AmBank FX Research noted that the one-month implied volatility for the ringgit against the dollar has increased to 9.43 per cent, indicating further uncertainty ahead.

"Foreign selling of Malaysian equities continues to be a concern. At the same time, the ringgit may be influenced by the plunge in crude oil prices ahead of the meeting by the Organisation of the Petroleum Exporting Countries to reduce production," it said.

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