No end in sight for ringgit, stocks rout

PETALING JAYA: It was a black Monday for the ringgit and the local stock market yesterday, with both tumbling to record lows, amid fears over China’s slowing economy and falling crude oil prices.
The ringgit fell 1.79% to 4.263 to a dollar yesterday, setting another 17-year low. That took its drop this month to 10.94%, the worst performance among 24 emerging-market currencies.
The ringgit also dipped below 3.00 to the Singapore dollar for the first-time ever, closing at 3.017 from Friday’s close of 2.976.
Meanwhile, oil prices dived more than 4% to 6½-year lows yesterday. US light crude, West Texas Intermediate (WTI), fell below US$40 a barrel, trading at US$38.62 at 1200GMT (8pm Malaysian time). Brent crude was at US$43.51 a barrel.
In tandem with regional stocks, the FBM KLCI was slashed 42.53 points or 2.7% to 1,532.14, its lowest since May 2012.
FXMT chief market analyst Jameel Ahmad said the emerging market currencies are falling at a pace that is somewhat similar to major global stock indices, with no floor in selling being seen currently.
“The outlook for these currencies remains for further falls with economic pressures furthering due to the price of oil falling to fresh milestone lows and China risks set to continue until at least the remainder of the current quarter.”
“There really is no floor to the ringgit’s weakness, and if the price of WTI continues to spiral to the low US$30s, the ringgit-US dollar will target at least 4.30,” he added.
Jameel said the Malaysian currency couldn’t even benefit from the US dollar’s weakness over the past few days, which shows a great deal about how weak investor sentiment towards the ringgit is at the moment.
The ringgit received no favours after Bank Negara Malaysia announced last Friday that external reserves fell 2.3% to US$94.5 billion at Aug 14, 2015 from US$96.7 billion on July 31, 2015.
Maybank Investment Bank Research expects the declining trend in external reserves to continue unabated for the rest of the year, potentially falling to as low as US$80 billion-US$85 billion.
Meanwhile, Standard Chartered head of Asean Economic Research Edward Lee said the dollar’s strength is not exclusive to the ringgit as the Australian dollar has fallen 11-12% year-to-date against the dollar.
“From a positive perspective, the ringgit depreciation acts as a shock absorber and provides looser monetary policy conditions.

The weaker ringgit should help to keep domestic exports competitive, especially when considering that regional currencies are also weakening. At the same time, the weaker ringgit helps to rein in import demand, thereby acting as some form of stabiliser to the economy,” he said.
Meanwhile, economist Dr Yeah Kim Leng noted that the weaker ringgit will help push the country’s net export earnings.