KUALA LUMPUR: The ringgit strengthened further to reach a fresh 13-year high against the pound sterling in intra-day currency trade yesterday as the United Kingdom and Europe continued to be mired in economic woes.

The local currency rose to a high of 4.9584 to the pound before weakening to 5.0008 at about 7pm, but rebounded to 4.9927 at about 8pm.

The last time the ringgit had broken through the 5.0 level to the pound was on Oct 9, 1997 when it hit 4.9920, amid the Asian financial crisis, although it did reach RM5.0039 in January 2009. The last high was posted at 4.9290 on Sept 24, 1997.

The ringgit first broke through the 5.0-mark in 13 years on Wednesday, strengthening to as high as 4.9741 against the pound.

CIMB Treasury Research regional rates/foreign exchange strategist Suresh Kumar Ramanathan said the ringgit was expected to continue strengthening against the euro and pound even as its rally against the US dollar petered out.

“Its fundamentals are there, it is just a question of whether its strength against the US dollar is sustainable. We see it at RM3.30 to the dollar in the first quarter of this year, and to weaken progressively to RM3.45 by year-end on the back of a stronger dollar.

“We also see weakness in some regional currencies against the dollar, but continued strengthening against the pound and euro,” Suresh told The Edge Financial Daily via telephone yesterday.

Against the euro, the ringgit was at 4.5325 as at 4.59pm yesterday, the strongest since November 2008.

The euro has continued to be weighed down by Greek’s debt woes, while the UK economy has remained weak, recently showing an unexpected decline in industrial production in January. Its manufacturing output fell 0.9% in the first month of the year, the sharpest monthly fall since last August.

The British currency has also been under pressure due to political concerns, with a general election looming this May.

Meanwhile, CIMB’s Suresh said apart from the flow of funds into the market, the local currency had also been propped up on optimism of the launch of the country’s new economic model, tentatively set for month-end.

He also said Bank Negara Malaysia’s move to be among the first in the region to raise the overnight policy rate (OPR), with more hikes expected, provided further upside momentum for the ringgit.

The central bank raised the OPR by 25 basis points to 2.25% last week, and economists are expecting another 50bps to 75bps increase by year-end.

On other breakout currencies to look out for this year, Suresh said he was keeping an eye on the Indonesian rupiah and the Singapore dollar.

He said this was because Indonesia had put in place the “right Islamic policies”, while its interest rate remained high at 6.5%, providing attractive returns.

He said the Singapore dollar was expected to rise in tandem with the cyclical upswing in global trade, although this would hinge on the Monetary Authority of Singapore’s move next month.

On the local bourse, the FTSE Bursa Malaysia KLCI closed the day in the red as profit taking set in. This was despite positive data on industrial production, which showed factory output rose 12.7% in January from a year earlier, and 2.9% month-on-month.

The FBM KLCI ended 6.79 points lower at 1,321.43, with glovemakers Supermax Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Holdings Bhd making the list of top losers, shedding 23 sen to RM5.82, 18 sen to RM7.42 and 15 sen to RM7.53, respectively.

The day’s top gainers were Boustead Heavy Industries Corp Bhd which rose 41 sen to RM4.78, Apex Healthcare Bhd which gained 28 sen to RM2.76 and APM Automotive Holdings Bhd which added 24 sen to RM4.04.

Turnover was 792.37 million shares valued at RM1.35 billion. There were 274 gainers and 440 losers, while 276 counters closed unchanged.

Meanwhile, Bloomberg reported that the ringgit weakened yesterday, retreating from its strongest level since August 2008, on speculation China will pare back stimulus measures to slow inflation. Bonds declined.

The currency trimmed gains for the week while stocks were also affected with the FBM KLCI easing after a government report in China showed inflation reached a 16-month high in February.

Consumer prices in China increased 2.7% in February from a year earlier, the National Bureau of Statistics said in Beijing yesterday, compared with the 2.5% median estimate of 29 economists surveyed by Bloomberg News.

China, Malaysia’s biggest overseas market, bought 74% more goods from the country in February from a year earlier after more than doubling purchases in January, a government report on Wednesday showed. The ringgit also weakened as a technical indicator signalled that its recent appreciation was excessive.

“Most people would expect China to withdraw some stimulus, though the impact shouldn’t be too great,” said Choong Yin Pheng, manager of economic and fixed-income research at Hong Leong Bank Bhd. “There’s a technical pullback in the ringgit after a strong run this week.”

The ringgit declined 0.1% to 3.3185 per dollar as of 5.01pm, according to data compiled by Bloomberg. It reached 3.3130 earlier, the strongest level since Aug 13, 2008. The currency has strengthened 2.7% so far this year, the best performer among the 10 most-active Asian currencies excluding the yen.

The so-called 14-day relative strength index tracking the ringgit was at 29.636. A level below 30 is taken to mean appreciation is likely to reverse.

Malaysia’s 10-year bonds declined, driving up yields to a one-week high. Today, the government will sell RM3.5 billion of notes maturing in September 2017.

The yield on the 4.378% note maturing in November 2019 increased one basis point to 4.24%, according to Bursa Malaysia. The price dropped 0.065, or 65 sen per RM1,000 face amount, to 101.085.


This article appeared in The Edge Financial Daily, March 12, 2010.