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The ringgit bounced back to cross
4.25 against the greenback yesterday, marking a confidence factor for markets
and likely to strengthen further in the coming weeks, according to currency
strategists.
Independent interest rate and
foreign exchange strategist Dr Suresh Ramanathan said the stimulus measures
launched by the Finance Ministry to support the local stock market earlier this
week were among the factors for the ringgit to reverse.
The devaluation of the yuan had
lumped more pressure on the local note leading to losses in Asia, making the
ringgit the worst performer in the past 12 months.
Suresh said the liquidity
injection to the equity market was a positive move for markets, limiting the
outflow of funds from equities and granting some form of two-way trade flows in
the equity market.
“The currency market has taken
this positively, although currency markets were scaling back their long dollar
positions as early as late last week in light of the Federal Reserve’s Federal
Open Market Committee (FOMC) decision this week, so naturally, the ringgit
gained,” said Suresh.
While the Fed had a dual mandate
of keeping inflation and unemployment low, Suresh said the issue would be
whether the Fed was willing to move policy rates in an environment of low
inflation and low employment.
The indication of a 3.2% deficit
target by the Prime Minister this year should not come as a surprise, since the
revenue section of the budget from the new consumption tax (the goods and
services tax) had compensated in preserving the target.
According to a Reuters report
yesterday, oil rose after an unexpected drawdown in US stockpiles and an
increase in US gasoline prices, but concerns remained about a global surplus,
falling Asian demand and whether the Fed would raise interest rates.
US crude futures strengthened
after the American Petroleum Institute reported a 3.1-million-barrel drop in
crude inventories last week, versus analyst expectations of an increase.
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