Malaysian ringgit remains susceptible to volatility in global oil prices

The Malaysian ringgit remains susceptible to volatility in oil prices as well as general ‘Brexit’-driven FX market jitters with the currency depreciating by about 1.7 percent against the USD since the beginning of the week.

Oil prices declined through the USD50 per barrel level amid concerns that the UK would vote to leave the EU at next Thursday’s referendum.

The incipient output costs that the global economy would suffer as a result are also likely to exert downward pressure on oil prices. Hence, the MYR is more vulnerable compared to other currencies in the region as it is still largely seen as an oil and gas currency. Heightened global uncertainty and lower oil prices are likely to weigh more heavily on the MYR compared to other AXJ currencies.

Meanwhile, demand for Malaysian exports has remained strong despite the sluggish global economy with exports rising by 1.2 percent y/y in January-April to MYR 246.5 billion while imports declined by 0.9 percent y/y in the period to MYR 213.5 billion. The rise in exports and fall in imports has resulted in the trade surplus increasing by 17.0 percent y/y in January-April to MYR 33.0 billion, which should help support the ringgit.

Nonetheless, in spite of robust exports, the government has plans to further boost export growth. The NEC has formulated several initiatives to promote public-private partnerships, which would entail focusing on areas such as trade, investment, tourism, education and healthcare.