Currency Forecast - MYR: Gradual Appreciation Likely - JUNE 2017

BMI View: We maintain our bullish outlook on the MYR over the coming months, with the currency supported by a positive technical picture. Over the long-term, we expect gradual appreciation as an undervalued exchange rate, an improving external position, and a return to political stability lend support to the currency. We forecast the MYR to end 2017 at MYR4.350/USD and 2018 at MYR4.200/USD.

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

The Malaysian ringgit is testing technical resistance at the MYR4.420/USD and a break of this level would suggest further strength on a short-term basis. In addition, with downward pressure mounting on US bond yields, the 4.1% yield on offer on Malaysia's 10-year local bonds is looking increasingly attractive (see 'Monthly Fixed Income Strategy - Removing Our Bullish TIPS View ' , March 10), which will be supportive of MYR strength. The central bank's measures to ensure currency stability appear to be taking effect, leading to a reduction in liquidity in the MYR onshore market. However, excessive strength will be capped as real interest rate differentials between Malaysia and the US continue to narrow in favour of the US. This is as we expect Bank Negara Malaysia (BNM) to keep rates on hold while forecasting the US Fed to hike rates one more time by 25bps in 2017.

Fall In MYR Transaction Volumes Positive For Currency Stability
Malaysia - MYR Realised Daily Volume, 30 day moving average
Source: BMI, Bloomberg

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