Sunday, November 29

Budget 2021 vote could sway market sentiment

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The ringgit attained its strongest levels against the US dollar since January, as US dollar-ringgit moved below the psychologically-important 4.10 level. The Malaysian currency ended the week as one of Asia’s best performers against the US dollar, with US dollar-ringgit posting its biggest weekly decline since September.

The ringgit was able to capitalise on the risk-on tone at the onset of the week, as investors cheered positive vaccine developments and also the RCEP trade deal, with further tailwinds from rising oil prices.

For the week ahead, the expected vote on Budget 2021 could trigger a significant reaction in the ringgit; failure to pass the budget may engulf Malaysian markets in a cloud of risk aversion. Malaysia’s October consumer price index due Wednesday is expected to post a 1.4 per cent year-on-year contraction, which would mark an eighth consecutive month of deflation.

On the global stage, investors will continue monitoring the health response out of major economies, whereby further evidence of the pandemic’s grip may further dampen risk-taking activities.

Besides the global tally of Covid-19 cases, investors are also set to digest major economic data releases, such as the EU’s latest PMI figures and China’s October industrial profits.

The US data dump on Wednesday features the second reading of the US 3Q GDP, personal spending data, and the latest weekly jobless claims. Positive surprises from such data releases could buffer hopes that the global economic recovery remains intact.

Markets will also be keenly awaiting the identity of the next US Treasury Secretary, with President-elect Joe Biden having revealed that he has already made his selection.

With the US economy clearly in need of more financial stimulus, investors will assess how closely aligned the next Treasury Secretary will be with the policy bias within Congress in determining the near-term US fiscal response to the pandemic. As for the monetary policy response, more clues may be gleamed from the incoming FOMC meeting minutes.

For the week ahead, another substantial shift lower for US dollar-ringgit could bring the 4.05 support level into focus, a level not tested since January. Should the ringgit be forced to give up some of its gains on risk aversion, the Malaysian currency may look for a return to closer to its 50-day simple moving average around the 4.14 region.

 

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