Ringgit expected to trend downwards amid escalating U.S.-China trade war

07, Aug. 2019

KUALA LUMPUR, NNA – Malaysia’s ringgit followed the regional pattern of weakening currencies Tuesday after U.S. President Donald Trump warned last Friday that he would impose a further 10 percent tariff on about $300 billion worth of Chinese goods on Sept. 1.

At shortly before 1:00 p.m. Malaysian time, the ringgit was trading at 4.18 against the dollar compared to Monday’s closing at 4.17. The dollar has appreciated some 2.3 percent against the ringgit during the course of the year.

“Regional currencies have gone south against the dollar in view of the heightened trade tensions between China and the United States. Only the Japanese yen strengthened against the U.S. dollar. We see persistent weakness in the ringgit as the trade spat worsens,” said Phua Lee Kerk, chief strategist at Phillip Mutual Berhad, a mutual fund.

Another analyst said that the U.S. Federal Reserve’s stance of doing away with more interest rate cuts had caused the dollar to strengthen. Pong Teng Siew, head of research at brokerage Inter Pacific Sdn Bhd, added that the ongoing trade war between the United States and China would also cause regional currencies, including the ringgit, to weaken further.

Most of the regional economies, including Malaysia, are manufacturers of intermediary goods. As the imposition of additional tariffs on Chinese goods will reduce trade, the demand for their currencies will also be lower, leading them to depreciate, according to Pong.

“We are of the opinion that the ringgit would depreciate further due to the monetary policy of the Federal Reserve and the trade imbroglio between the United States and China,” said Pong.