(Bloomberg) -- Currency traders are gearing up for an action-packed week as the Federal Reserve moves toward tapering its debt purchases. But the Malaysian ringgit is looking surprisingly calm.
The currency looks set to weather any volatility fueled by a withdrawal of U.S. stimulus as Malaysia's economy rebounds amid an easing of virus-related curbs. Rising stock inflows and a sizable trade surplus will also provide a buffer.
The ringgit has bounced back from a one-year low as traders bet that a resumption in travel and business activity will haul the economy out of its worst slump since 1998. A policy review on Wednesday will be in focus, with the currency likely to get a boost if Bank Negara Malaysia delivers an upbeat assessment of the growth prospects.
The ringgit has climbed more than 2% in the past three months even as traders ramped up bets for the Fed to tighten policy. It rose 0.2% to 4.1403 per dollar on Friday.
Stock inflows have been a key pillar of support for the currency, with global funds scooping up about $400 million of local equities in October, the biggest monthly purchase since early 2018.
Standard Chartered Plc expects the ringgit to end the year at 4.15 as strong domestic fundamentals counter global risks.
“The improvement in Malaysia's terms of trade driven by higher energy prices will offset other external headwinds like China's growth and higher developed-market yield,” said Divya Devesh, head of Asean and South Asia FX research at Standard Chartered Bank in Singapore.
The trade surplus has widened to 26.1 billion ringgit ($6.3 billion) in September from the year's low of 13.75 billion ringgit reached in May. Robust demand for the nation's electronics and petroleum products has helped to boost the excess.
Malaysia's economic growth is expected to accelerate to 5.5%-6.5% in 2022 from an estimated 3%-4% this year, Finance Minister Zafrul Abdul Aziz said Friday. A resumption of activities and increased global demand, coupled with higher commodity prices, will support the expansion, he said.
Subdued Volatility
Technicals indicate that the Malaysian currency has room to appreciate. The dollar-ringgit pair fell 1.1% in October, with the 50-day moving average capping its upside, and now looks on track to test support at its September low of 4.13.
A gauge of the pair's one-week implied volatility is trading at around 6.01 vol versus the year's high of 7.42, suggesting that traders aren't bracing for excessive swings in the aftermath of the Fed's Nov. 3 rate decision.
The ringgit slid over 7% from May through August 2013 after the Fed announced that it was planning to wind down its bond-buying program.
Here are the key Asian economic data due this week:
- Monday, Nov. 1: Australia home loans, China Caixin manufacturing PMI, South Korea trade balance, Indonesia CPI
- Tuesday, Nov. 2: RBA policy decision and Debelle speaks, New Zealand building permits, South Korea CPI
- Wednesday, Nov. 3: Australia building approvals, New Zealand 3Q employment and RBNZ's financial stability report, Bank Negara Malaysia rate decision, China Caixin services PMI
- Thursday, Nov. 4: Australia trade balance
- Friday, Nov. 5: RBA statement on monetary policy, China and South Korea BoP current-account balance, Indonesia 3Q GDP, Philippine CPI and trade balance, Thailand CPI
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