KUALA LUMPUR: Bank Negara Malaysia’s decision to keep benchmark interest rates unchanged underscores the notion that country’s economic recovery is truly underway.
FXTM market analyst Han Tan said the ringgit pared losses against the US dollar from the first half of the week to end the period closer to the 4.15 psychological level, as Asian currencies posted a mixed bag of results against the greenback.
“Such a narrative may have bolstered sentiment for the ringgit since the central bank’s policy decision, with ringgit being Asia’s best performer against the US dollar over the past two days, despite Brent futures sinking back below the psychologically-important $40 per barrel mark,” he said in a statement today.
However, Han said policymakers did highlight that the road ahead still poses ‘downside risks and uncertainty’, and may have to ease further if the recovery momentum stalls.
In keeping with the central bank theme, he said the US Federal Reserve (Fed), Bank of England (BOE) and the Bank of Japan (BOJ) are set to make their respective policy decisions in the week ahead.
“Although these G10 central banks are all expected to leave their respective policy settings, investors will be hoping for more policy guidance, and that may sway the currencies complex.
“The Fed’s outlook is especially significant, having flipped the script on how it handles US inflation,” he said.
Han said China’s data dump on Tuesday could have significant bearing on broader market sentiment surrounding Asian assets.
“If China’s retail sales data can deliver a positive surprise and mark a return to on-year expansion that could fuel risk appetite on evidence that the post-pandemic recovery is indeed permeating the world’s second largest economy.”
Should a vaccine make major strides towards being closer to mass roll-out in the week ahead, he said it could also boost risk-on sentiment, much to the benefit of riskier assets including emerging market currencies.
For the week ahead, should US dollar and ringgit break below its closest Fibonacci line on the one-year chart at 4.1453, further dollar weakness may bring the currency pair to retest the month-to-date low of 4.1343.
“To the upside, US/ringgit’s immediate resistance line can be drawn at 4.1683, with stronger resistance set to arrive at 4.1763, having already proved its worth earlier this week,” he added.
Source: New Straits Times