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Ringgit’s Risks Grow as Malaysia’s Political Angst Adds to Woes

(Bloomberg) -- The Malaysian ringgit is vulnerable to a drop toward last year’s low as concerns over the fragility of Prime Minister Anwar Ibrahim’s government add to the currency’s headwinds.

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The ringgit’s advance in the last two months of 2023 proved fleeting as apparent attempts to oust Anwar unnerved investors. The currency is about 3% away from a 25-year low reached in October.

The political chatter is adding to the pressure on the ringgit — emerging Asia’s worst performer last year — as Malaysia grapples with a recent slide in oil prices and falling exports. While Anwar has dismissed the alleged plots to bring down his administration, concerns over political stability prevail. The Southeast Asian country had seen four different premiers in as many years before Anwar rose to power in 2022.

“The Malaysian ringgit is cheap, no doubt, but there’s no catalyst for a revaluation shift,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore. “There’s still no exciting stories coming out of Malaysia, and the coalition government appears still fragile.”

He expects the currency to slip about 2% from Friday’s close to 4.75 versus the dollar in the first half of this year. In October, the ringgit slumped to nearly 4.8, the weakest since January 1998, the height of the Asian financial crisis.

Uncertainty over how incarcerated ex-premier Najib Razak’s application for a royal pardon would play out looms over the market. A six-member board headed by the Malaysian king will meet this month to decide on the matter, Singapore-based Channel News Asia reported.

The ringgit has slid more than 1% in January, adding to losses from the previous three years.

Near-term weakness in oil prices is another “headwind to the ringgit via the trade channel, given that Malaysia is a net energy exporter,” said Nicholas Chia, a macro strategist at Standard Chartered Plc.

The slow recovery in China, Malaysia’s largest trading partner, is also hurting the ringgit. Weaker-than-expected purchasing managers index data showed growth momentum in Asia’s largest economy has declined further, while any policy easing by the Chinese central bank may have little impact.

Investors will be keeping a close eye on Malaysia’s trade data due Jan. 19 after trade surplus in November declined to the lowest level since May 2020. The government will also publish advance gross domestic product data on the same day.

Bets that the Federal Reserve will start cutting interest rates as soon as March may cushion the blow on the ringgit. However, this tailwind may count for little in the coming days given push backs by some policymakers. Federal Reserve Bank of Atlanta President Raphael Bostic, who is voting on monetary policy decisions this year, has said rate cuts may only start in the third quarter.

Here are the key Asian economic data this week:

  • Monday, Jan. 15: China 1-yr MLF, Australia household spending, Indonesia trade balance, Philippine overseas remittances, India trade balance

  • Tuesday, Jan. 16: Australia consumer confidence, Japan PPI

  • Wednesday, Jan. 17: China 4Q GDP, retail sales, industrial production and fixed assets ex-rural, Bank Indonesia interest rate decision, New Zealand retail card spending, Singapore non-oil domestic exports

  • Thursday, Jan. 18: Australia employment, Japan core machine orders and industrial production

  • Friday, Jan. 19: Japan CPI, New Zealand manufacturing PMI and net migration, Malaysia trade balance and 4Q GDP

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