In previous articles, we demonstrated the RM exchange rate
movement based on Brent Crude Oil and other political factors (Read
more here), and (Read
more here). This week, we are
looking at the impact of GE14 to RM.
The chart below shows the relationship between RM and Brent
Crude Oil. The scattered 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 December
2017. The green dots are pre-GE14 data
while the yellow dots are post-GE14 data in 2018.
Before the 1MDB scandal was exposed, RM was strongly
correlated with oil price. This is shown
by the blue dashed curve (July 2005 – July 2017, R2 = 0.74). After the 1MDB scandal was exposed, RM was
weakened to about one standard deviation from the historical trend. It was trading on the red dashed curve four
month before the GE14. However, RM was
further weakened to 1.5 standard deviation curve (dashed yellow curve)
immediate after GE14. This could be due
to the additional negative news exposed by the newly elected Government.
Moving forward, RM is expected to trade along
the yellow curve before Malaysia finds a sound solution to solve its financial
and economic issues. According to EIA
and OECD data, oil price is projected to trade around USD69 – 73 per barrel in
2018 (Read
more here). This suggests the
RM will be trading in the range of RM4.05 to RM4.15. Meanwhile, on 4th September,
Standard Chartered Bank suggested the ringgit will trade at RM4.0 against the
USD by end of 2018 and RM4.1 by end of 2019 (Read
more here).
Source: Knoema
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