KUALA LUMPUR (Aug 30): The ringgit continued to depreciate against the US dollar for the seventh day as sentiments abroad worsened with the US-China trade war and as investors flocked away from local stocks.

The currency has depreciated into a 4.20-4.25 range, and at the time of writing it was trading at 4.2260.

DBS Group Research in a strategy note today said it does not expect the ringgit to buck the weaker Chinese yuan and Singapore dollar, the currencies of its top two trading partners.

"Despite better-than-expected growth in 2Q 2019, the finance ministry believed the full brunt of the trade war would be felt only in 2020. The ministry is considering an expansionary budget for 2020 and possibly delay narrowing the fiscal deficit to 3% of gross domestic product next year from 3.4% this year," it said.

DBS added that it is looking for Bank Negara Malaysia to deliver another rate cut in the fourth quarter this year. The overnight policy rate was last lowered on May 7 by 25 basis points to 3%.

"The central bank will further liberalise the foreign exchange administration (FEA) today to improve market liquidity and provide real investors access to hedging onshore. This should help convince FTSE Russell, at its September review, to retain Malaysia in its World Government Bond Index. The new FEA measures will allow businesses to better manage their FX risks and manage daily operations in an increasingly uncertain global environment," it said.

FTSE Russell's review of Malaysia's Market Accessibility Level, which could have implications on the eligibility of Malaysian Government Securities (MGS) for inclusion in the World Government Bond Index (WGBI), is coming up in September.

"Our base case is that MGS will stay in the WGBI. A question of interest then, how much can MGS rally if we see a favourable decision," said DBS.