After hitting a near 19-year low of 4.4980 in January, the Malaysian ringgit has since recovered to gain more than 7 per cent against the US dollar.

SINGAPORE: The Malaysian ringgit touched a more than one-year high against the US dollar on Friday (Nov 17), extending its year-to-date rebound on the back of a slide in the greenback and better-than-expected economic growth numbers.

The currency rose to 4.1563 versus the US dollar earlier in the day – its highest level since October 2016 – before last trading at 4.1640, according to Bloomberg data. The ringgit, which hit a near 19-year low of 4.4980 on Jan 4, has gained almost 7.2 per cent thus far this year.



This marks a turnaround from its performance over the past two years, when it was among Asia’s worst-performing currencies due to a toxic combination of threats – slowing economic growth, fluctuations in the price of crude oil, depleting foreign exchange reserves and a protracted political crisis over 1MDB.

Most of these concerns, however, seem to have cooled off this year.

Gross domestic product (GDP) released at noon showed Malaysia’s economy expanded 6.2 per cent in the third quarter from a year earlier, driven by domestic demand and strong exports. This beats a Reuters poll forecast of 5.8 per cent and marks the country’s fastest growth in more than three years.

Data from Bank Negara Malaysia (BNM) also showed current account surplus in the third quarter widening to 12.5 billion ringgit, up from 9.6 billion ringgit in the April to June period.



Meanwhile, oil prices have made a U-turn since June, with US crude oil last seen around US$55.36 a barrel and Brent crude at US$61.23 per barrel.



This bodes well for the third-biggest economy in Southeast Asia, which is the only net exporter of oil among Asia's major economies and the second-largest liquefied natural gas exporter in the world.



“We estimate for every US$10 increase in the oil price this would widen the trade surplus by about 0.4 per cent of GDP, helping to keep the current account in a comfortable surplus, which now stands at around 2.3 per cent of GDP,” noted a report from Nomura Research.



Also buoying the ringgit’s rebound is a limp US dollar, which DBS foreign exchange strategist Philip Wee described as the “biggest surprise of the year”.



“The US economy has been doing quite well but this year, the US dollar has been oversold," said Mr Wee, citing uncertainties over the Trump administration's policies and political headlines.

COULD THE REBOUND LAST?



Speaking at the GDP briefing earlier in the day, BNM governor Muhammad Ibrahim described the currency’s rebound as a mirroring of economic strength and that it is “more reflective of financial flows in the domestic market”.



"Ringgit levels are a reflection of our economic strength, and there is more liquidity in the market now and it is not influenced by speculative flows anymore," Reuters quoted the central bank chief as saying.



Last week, BNM also said in its policy statement that it “may consider reviewing the current degree of monetary accommodation” given the strength of global and domestic macroeconomic conditions. This is to “ensure the sustainability of the growth prospects of the Malaysian economy”.



This shift in guidance by the central bank towards a hawkish tilt signalled a possible rate hike in 2018. Together with the upbeat GDP report, it adds to the “list of positive factors supporting the ringgit”, according to Maybank analysts.



“We believe there is more room for this laggard to play catch-up,” said Maybank's report on Friday, adding that an extension of decline beyond the key support level of 4.1720 could see the pair heading lower towards 4.15.



Ms Irene Cheung, senior strategist for Asia at ANZ, expects the ringgit to stay at current levels for the rest of 2017. Not even an interest rate hike by the US Federal Reserve next month could depress it, given how markets have “fully priced in” the rate increase, she added.



Nevertheless, the ringgit could still feel the pressure of further US rate increases in 2018 and weaken to levels of around 4.30 against the US dollar. Analysts, including Ms Cheung and Mr Wee, are expecting the US central bank to raise its benchmark fed funds rate three times next year.



A general election, which has to be held by August 2018 at the very latest, could also stir some fluctuations in the currency, analysts said.



HOW IT MAY FARE AGAINST SING DOLLAR



Against the Singapore dollar, analysts Channel NewsAsia spoke to have differing views about the ringgit’s moves.



The ringgit ticked up modestly against the Sing dollar to 3.07404 on Friday, and breached the key support level of 3.08 earlier this week.



This trend could continue with the Sing dollar being “a slow burner”, Ms Cheung reckoned .

“We are constructive on both currencies but the Sing dollar will be a slow burner with the next MAS (Monetary Authority of Singapore) policy meeting in April. We also expect MAS to only tighten in October,” she told Channel NewsAsia.



“The drivers for the ringgit will be more immediate, such as the upturn in commodity prices and other domestic factors. So, the SGD/MYR cross looks like its heading lower in the near term.”



Mr Wee from DBS agreed, but stressed that any rise in the ringgit against the Sing dollar will be modest.



“I don’t expect the ringgit to depreciate against the Sing dollar anymore as long as the cyclical recovery is intact. But I’m also not in the camp that says it will appreciate in a big way against us,” he said. “The ringgit is just recovering what it has lost previously.”



But Mr Julian Wee, senior markets strategist for Asia at National Australia Bank (NAB), had a different take.



“The fall in the SGD/MYR to the 3.07 handle has been precipitous and largely on the back of that surprise shift in the BNM’s tone. This is likely to reverse in the first quarter of 2018,” he told Channel NewsAsia in an emailed reply, citing factors like a “somewhat fragile nature of Malaysia’s GDP growth”.



As such, he expects the cross to rise back above 3.10 and peak around 3.14 to 3.15 in the run-up to the Malaysian elections.