Maybank FX Flash: MYR - Fitch Outlook Surprises - 1 Jul 2015

MYR: Fitch Outlook Surprises

        USDMYR, SGDMYR eased from recent highs on Ringgit strength arising out of Fitch announcement. Fitch affirmed Malaysia’s Long Term Foreign Currency Issuer Default Rating (IDR) at “A-”, and local currency IDR at “A”. The positive surprise came via the upward revision to the outlook on Long-Term IDRs to ‘Stable’, from Negative.

        USDMYR could test lower, possibly towards 3.65-3.70 levels over the coming weeks on sovereign rating downgrade concern out of the way and a positive surprise on outlook revision.

        Looking out into 3-month horizon, USDMYR upside pressure towards 3.80-3.82 cannot be ruled out amid a combination of factors including, possible Fed tightening in Sep (USD supportive),  financial market volatility arising out of Grexit risks and China growth risks, contingent liability risks and its vulnerability to external economic shocks. The stronger USD is likely to also put pressure on commodities with negative impact on the MYR. We expect to see some stability returning to Ringgit over the next 1 year as fiscal consolidation gains traction and external vulnerabilities gradually dissipate. Our FX forecast for end 2Q 2016 at 3.70 remains.