Signs of oil price stability will support the ringgit

By Farah Adilla - April 28, 2020 @ 10:23am

KUALA LUMPUR: The ringgit bounced back today, albeit mildly, after a rocky last week as Brent crude oil rebounded from its deepest price slump since February 2002.

But the extension of the Movement Control Order (MCO) by another two weeks might drag the ringgit down on the back of slower economic activity, economists said.

Still, signs of stability in the price of oil would provide some support to the ringgit this week, they added.

At 6pm, the local unit rose to 4.3530/3630 versus the greenback, after trading the day at 4.3570/3650.

Last Friday, the ringgit eased 0.05 per cent to 4.363 against the dollar.

Last week, Brent price rose 0.52 per cent to US$21.44 a barrel while WTI edged up 2.67 per cent to US$16.94 a barrel as energy producers continued to cut the number of rigs drilling for oil in US and Canada.

Brent hovered around US$21.20 a barrel in early trade today.

AxiCorp global chief market strategist Stephen Innes said the MCO trade-off was viewed as prudent so long as governments "backstop" those negatively affected to "bridge the gap".

He said currency markets were ignoring the front-month Brent and WTI contract, and rather focusing on the September contracts which were trading on better footing.

"Oil traders do not think this front end oil futures capitulation will last, and that oil Brent should return to US$25-US$30 a barrel by the end of June or July.

"The ringgit will also find support from China which is returning to work, and I'm sure the PBoC (People's Bank of China) will continue to stimulate the economy to ensure the economy fires.

"By no means is it a positive setting for the ringgit but my view is that it can only get better as lockdowns around the world get lifted," he said.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul said although the MCO had been extended, there would be more sectors allowed to operate.

He said the takeaway from this ws that the extent of the output loss might not be too excessive.

"We have seen the equities market improve, signaling that the market has priced in the positive news. The number of active cases has also come down and it has hovered below 200 a day for a number of days now.

"In that sense, there is a case for the ringgit to stabilise. However, economic data globally will be very disappointing for April and May. So we could expect some knee jerk reaction intermittently," Afzanizam said.