Ringgit slips to 4.17 to dollar as US-China tariff war hots up

14 May 2019 / 21:22 H.

PETALING JAYA: US-China trade tensions continued to take a toll on the ringgit, which sank as much as 0.15% to 4.1722 against US dollar, the lowest in more than four months.

As at 5pm today, the local unit was trading at 4.1705.

Having lost 0.9% year-to-date, the ringgit has been on a downtrend since late March amid domestic and external headwinds.

World Bank lead economist for Malaysia Richard Record said as an open economy in terms of both trade and financial flows, Malaysia’s economy is susceptible to external pressures, including exchange rate movements. This is particularly so during periods of market turbulence and uncertainty, such as that relating to current US-China trade tensions.

However, he said Malaysia’s economic fundamentals remain strong. These include a diversified economy with balance between domestic and external demand, and economic activity across a wide range of sectors from manufacturing to commodities.

“Malaysia’s challenge is to remain focused on strengthening the underlying determinants of economic competitiveness that will support growth and job creation over the medium term, including sound macroeconomic management, low costs of doing business, and the wide adoption of digital technologies to unlock a future driver of growth,” Record told SunBiz.

In a note today, UOB Research said the broad US dollar strength and cautious mood amid escalation of US-China trade tensions will weigh on the ringgit. The highest level reached in recent months was 4.2020 at end-November last year.

“The renminbi leads the retreat in Asian currencies, which in turn led to the pullback in other emerging market currencies. Given global risk-off sentiment, it will be challenging for emerging market currencies including the ringgit to stay firm,” it said.

China on Monday announced it would impose higher tariffs on US$60 billion (RM250 billion) of US goods after Washington’s decision last week to hike its own levies on US$200 billion of Chinese imports.

The tariff escalation has rattled global markets even as China and the US have agreed to keep talks going over their trade dispute. US President Donald Trump said he thought recent discussions in Beijing would be successful.

“Despite a more uncertain outlook, we maintain our base case expectation (albeit a lower 60% probability against the previous 65%) that the trade negotiation will be long-drawn, well into the second half of this year, before a resolution. We see the probability of an all-out trade war at 30% vs previous 25%,” said UOB.

At home, Bank Negara Malaysia (BNM) cut the Overnight Policy Rate by 25 basis points to 3.00% last week, citing downside risks to economic growth.

The central bank kept a cautious tone amid lingering downside risks to growth and signs of tightening of financial conditions. It said latest developments suggest slower activity in first quarter 2019 (Q1 19), reaffirming that gross domestic growth is off to a slower start this year. First quarter growth figures will be released tomorrow.

RHB Research said the escalating US-China trade war is expected to put further downward pressure on already-declining global economic growth, particularly in 2020.

“If the situation persists and worsens, this may derail our expectation of a rebound in global and Asean-5’s (Malaysia, Indonesia, the Philippines, Singapore and Thailand) economic growth in 2020, offsetting the benefit of a rate pause by the US and policy easing by other major economies. We expect the major eco-nomies to ease their policies further to support growth, which may prevent the global economy from sliding into a recession in 2020.”

On Bursa Malaysia, the FBM KLCI fell 1.90 points to close at 1,599.19 today, off a high of 1,603.72 and a low of 1,572.03.

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