KUALA LUMPUR (Aug 16): Bank Negara Malaysia (BNM) warned that the ringgit is expected to continue to be exposed to periods of heightened volatility, as Covid-19-led uncertainties linger around the momentum of the global and domestic economic recovery at a time when investors expect a faster pace in US monetary policy normalisation.

In a statement on the central bank's website, BNM said between July 1, 2021 and last Monday (Aug 9), the ringgit depreciated 1.7% against the US dollar, in line with the performance of most other regional currencies amid broad strengthening of the US dollar.

"The ringgit appreciated by 0.1% against the greenback in the second quarter of 2021 (2Q21), largely due to weakening of the US dollar in the earlier part of the quarter as a result of declining real US Treasury bond yields, which led investors towards higher-yielding assets.

"However, expectations for a faster pace in monetary policy normalisation following the June Federal Open Market Committee (FOMC) meeting, led to a slight rebalancing of investors’ portfolios towards US dollar-denominated assets at the end of the quarter,” BNM added.

The ringgit, which weakened to 4.2430 against the US dollar earlier today, ended stronger at 4.2370 against the greenback, versus Friday's close of 4.2375.

Over the last one year, the exchange rate had traded between 3.9957 and 4.2440.

The ringgit also weakened against a basket of other major currencies, following news about Prime Minister Tan Sri Muhyiddin Yassin and his Cabinet's resignation.

It retreated against the Singapore dollar to 3.1237 from 3.1205 previously, and fell against the Japanese yen to 3.8777 from 3.7717.

The local note also depreciated vis-a-vis the euro to 4.9893/9940 from 4.9775/9798 at the end of last week, and eased against the British pound to 5.8680/8736 from 5.8476/8504 previously.

Kenanga Investment Bank Bhd economists wrote in a note today that the ringgit "remains under pressure on heightened political uncertainty and Covid-19 concerns”.

They said the local currency weakened against the strengthening US dollar, amid growing safe-haven demand despite Malaysia's above-consensus-forecast second-quarter (2Q) economic numbers and the fact that more than 30% of its population had been fully vaccinated against Covid-19.

"In addition to the higher US Dollar Index, the ringgit struggled to retain its strength as domestic Covid-19 cases continued to climb above the 20,000 mark and Brent crude oil prices continued to test the US$70 (about RM296.90)/barrel level.

“The ringgit is seen to trade between 4.23 and 4.25 (against the US dollar ) this week, as the rapid spread of Delta variant cases across the globe may continue to unnerve the oil market, dragging the Brent crude oil price lower. The ringgit also has the potential to test the 4.30 threshold, as the prime minister has expressed his intention to step down when he appears before the King today.

"In addition, any pro-dollar signal from the release of the FOMC minutes and July US retail sales data may put additional downward pressure on the local note,” they said.

MIDF Amanah Investment Bank Bhd’s strategy team wrote in a note today that the ringgit weakened further last week, after depreciating 0.4% from a week earlier, amid concerns about Malaysia’s political uncertainty and an elevated rise in the country’s daily number of newly-confirmed Covid-19 cases.

"The ringgit did not appreciate despite the weaker US dollar [last week], as more concern was placed on the local (Malaysia's) economic condition.

"The movement in crude oil prices also did not offer any support, as the Brent crude price was relatively unchanged from the previous week,” MIDF’s strategy team said.