Stable Chinese yuan reduces downward pressure on Malaysian currency

Updated 2017-06-29 15:28:29 Xinhua

BMI Research, a Fitch group company, upgraded Malaysian ringgit forecast for these two years on Thursday after it sees some stability in Chinese yuan.

"A more stable yuan will be positive for the ringgit given that China is one of Malaysia's largest trade partners," said BMI Research in a report.

The yuan and the ringgit have continued to move in the same direction, said the research house, adding that it believes that a stable yuan reduces tail risks facing the ringgit, as significant yuan weakness would likely impose downward pressure on the ringgit.

The research house said it has upgraded yuan forecast and has also forecast that the ringgit could hit 4.200 against U.S. dollar in 2017 and it could hit 4.100 against U.S. dollar in 2018 from 4.350 and 4.200 respectively, to reflect the ringgit's stronger-than-expected performance thus far.

This suggests that the ringgit will remain on a gradual appreciatory trend over the medium term.

The ringgit forecast, however, is faced with potential risks if the Federal Reserve hikes its interest rate further and if U.S. President Donald Trump's "America First" policies brought down the volume of global trade, which would be negative for Malaysia's export sector, said the research house.

The ringgit, which is Asia's best performer so far this year, has risen 4.3 percent against the U.S. dollars year-to-date (based on Bloomberg data) at the point of writing. The yuan has also gained 2.35 percent against the U.S. dollar since the beginning of this year, according to Bloomberg data.

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