Currency Forecast - MYR: Appreciatory Trend Set To Continue - DEC 2017

BMI View: We maintain our positive outlook on the MYR, with the currency showing signs of consolidation following a break of resistance. Over the longer term, we expect the currency to appreciate as it remains supported by a stabilising political outlook, an improving fiscal position, and still-undervalued real effective exchange rate.

Short-Term Outlook (three-to-six months)

The MYR has strengthened by 9.3% y-o-y since January and is showing signs of consolidation following the break of trendline resistance at MYR4.32/USD. We have long highlighted that default risk in Malaysia is extremely low and that the political situation would stabilise despite the need for general elections to be held by August 2018. The decline in Malaysia's 5-year credit default swap (CDS) suggests that perceptions of default risk have continued to decline. Given the strong correlation between the MYR and CDS spreads, this should support the ringgit in the near term, with the CDS spread having reached multi-year lows.

Looking Technically Positive
Malaysia - Exchange Rate, MYR/USD
Source: BMI, Bloomberg

This article is part of our South East Asia Vol 2 coverage. To access this article subscribe now or sign up for free trial