HALISTER1: Ringgit Lacks Buffer Against Stress, May Hit 4.40/USD: Deutsche

Ringgit Lacks Buffer Against Stress, May Hit 4.40/USD: Deutsche

(Bloomberg) -- MYR gave up more than half its 1Q gains in May and could be headed back to 4.40 vs dollar even without last yr’s combination of political instability and lower oil, Deutsche Bank analysts write in note today.
  • The best of risk premium compression and MYR inflows is likely done and foreign underweights already covered
  • Ringgit has very little buffer against stress; beta to global variables leaves it vulnerable
  • Five main reasons for negative MYR view:
    • Malaysia’s shrinking current account cover
    • Capital flow balance unlikely to be sustained
    • MYR has strong correlation with rate differentials
    • MYR’s beta to market variables from USD, oil, CNY fixings, and credit risk point to continued caution
    • Official defenses against currency weakness remain thin
  • USD/MYR up 0.5% to 4.1650; last touched 4.40 in Jan.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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