Oil Price Impact on Ringgit Exchange Rate

According to Bloomberg’s report (Read more here), oil-related sources contributed about 41% of Malaysia government revenue in 2009.  This dropped to 13% – 14% in 2016.  As such, crude oil price has an impact on Malaysia’s economy, including the Ringgit exchange rate.

The following graph shows the regression plot of USD/RM vs Brent Crude Oil from July 2005 to July 2017.  It shows that the Ringgit movement was significantly influenced by oil price.  Ringgit strengthened when oil price was high while the Ringgit weakened when oil price was low. 

The scattered dark blue dots are the actual data of USD/RM corresponding to respective Brent Crude Oil price from July 2005 to July 2015 while the scattered red dots are the actual data of USD/RM corresponding to respective Brent Crude Oil price from August 2015 to July 2017.  The light blue curve is the fitted regression line between USD/RM and Brent Crude Oil price (July 2005 – July 2017, R² = 0.74) while the dashed red line is the + one standard deviation plot from the fitted regression line.

It is interesting to observe that before Aug 2015, the Ringgit was stronger and was well predicted by the regression line.  However, since Aug 2015, the Ringgit has weakened by + one standard deviation.

In the World Economic Outlook, April 2017 report, International Monetary Fund (IMF) predicted the oil price to be trading around USD55 per barrel in 2017 – 18 (Read more here).  Based on this, the Ringgit could be forecasted using the above regression analysis.  If all the post-2015 negative issues in Malaysia are resolved, Ringgit could trade around USD/RM 3.80.  Nevertheless, if the negative issues persist, the Ringgit may trade around USD/RM 4.18 as the above graph suggests.

For more information about regression analysis and business forecast, please visit http://www.mpcap.com.my/ or contact info@mpcap.com.my.