Benchmarking Ringgit

Latest News: The dollar has reached the long-term support level near 0.93 identified on the U.S. dollar index chart several weeks ago. That is a critical support level. Below this support level lies the abyss with the next solid support near 0.83. However, the weekly chart puts the dollar behavior into a wider context. The dollar index chart has been dominated by a very broad sideways trading band that started in March 2015. The upper level of the band is resistance near 1.00. The lower edge of the band is support near 0.93. If support holds near 0.93 then traders will watch for a rebound rally and a retest of resistance near 0.97. That behavior will signal a continuation of the trading band behavior. Failure of support near 0.93 plunges the global economy into an unwelcome and unwanted currency war. Read More

Given the current circumstances, how should we view the Malaysian Ringgit (MYR)?

Strictly for illustrative and educational purposes

Since USD is weakening, logically we should expect the MYR to trade higher. Nevertheless, how should we benchmark Ringgit (whether it should be higher or lower)?

Benchmarking 1: Against USD Dollar Index

In this aspect, MYR appears to be undervalued, as it should be trading higher against the USD (actual $4.268 vs forecast $3.9727):

MYR vs DXY 29082017

MYR vs DXY 29082017_2

Benchmarking 2: Against USD Dollar Index & Brent (USD)

In this multi-regression analysis, MYR still appears to be undervalued, as it should be trading higher against the USD (actual $4.268 vs forecast $4.0141).

MYR vs DXY & Brent 29082017

MYR vs DXY & Brent 29082017_2.png

Benchmarking 3: Against Other ASEAN Currencies

Using other key ASEAN currencies as benchmark, the MYR appears to be fairly valued (actual $4.268 vs forecast $4.2989):

MYR vs ASEAN 29082017.png

MYR vs ASEAN 29082017_2.png

Benchmarking 4: Against GBP / Yen / Euro

In this aspect, MYR appears to be undervalued (actual $4.268 vs forecast $4.0831):

MYR vs Non-Asean.png

In a general nutshell, based on this simple high-level desktop analysis, it appears that the Ringgit is on a higher probability of being undervalued than overvalued. Nevertheless, further research on Malaysian economic fundamentals should be undertaken to refine the forecast trading range of the Ringgit.

What about other ASEAN currencies?

  • Rather mixed across the currencies.
  • SGD moves closely within its forecast range.
  • THB appears to have higher probability of being overvalued.
  • IDR relationship with USD Dollar index remains mixed in the past 2 years.
  • PHP appears to have higher probability of being undervalued.

SGD vs DXY 29082017.png

THB vs DXY 29082017.png

IDR vs DXY 29082017.png

PHP vs DXY 29082017.png

 

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Author: Ken Utau

Data Scientist, Markets Analyst and Food Lover

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