KUCHING: The huge resurgence in Covid-19 infections across the Asean region could weigh on its economic revival which would keep Asean currencies under pressure in the near-term, analysts observed.
In its monthly economic viewpoint report on the outlook of the Asean economy, the research team at Kenanga Investment Bank Bhd (Kenanga Research) pointed out that Asean’s Covid-19 condition worsened over July, leaving Southeast Asia as one of the global epicentres for the virus.
Of late, Malaysia and Thailand have consistently registered record high levels of new infections, whilst Indonesia has struggled with the largest caseload in the region, driven mainly by the highly infectious Delta variant, with the Thai government reporting that it accounted for more than 60 per cent of the cases in the country.
The research team noted that the impact of this resurgence would likely be exacerbated by the region’s relatively low vaccination rates as only 17.6 per cent of the Thai population have received at least one dose of the vaccine, with Indonesia at 17.1 per cent, and Philippines lagging behind at 10.5 per cent. However, Malaysia has shown significant progress with 41.7 per cent of its population receiving at least one vaccine shot.
“With that said, this burgeoning health crisis will weigh on Asean’s economic revival, especially if lockdown restrictions are extended, which may risk most of Southeast Asia falling behind its Asian neighbours and would keep Asean currencies under pressure in the near-term,” it opined.
For Malaysia, it noted that the ringgit depreciated against the US dollar for the third straight month in July, falling to its weakest level in one year, primarily due to rising domestic Covid-19 cases, which continued to record five-digit figures since July 13.
“The direction of the local note for this month will be heavily influenced by the domestic political landscape and Covid-19 situation as more people are fully vaccinated.
“The ringgit may continue to weaken if the Fed offers any tapering hints at its Jackson Hole symposium,” Kenanga Research said.
For the week ahead, it said, the ringgit is expected to weaken around the 4.23 to 4.25 level against the US dollar as domestic political concerns grow.
On top of that, continuous rise in the number of Malaysia’s Covid-19 ICU cases and deaths, coupled with lack of positive catalysts, are seen to drag the local note lower.
However, it pointed out that higher crude oil prices should limit ringgit’s losses.