3 Key Factors Affecting the Malaysian Ringgit
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
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Hello and greetings. In this article, I will share with you 3 important matters that are set to take place in the near future.
Of late, the KLCI Index and the movement of the Malaysian Ringgit have been somewhat worrying for many parties, as several economic sectors have been declining — which will inevitably have an effect on the global economy.
While last week the palm oil sector showed encouraging signs, this week we are anticipating several news developments that could bring significant changes to the economic sector.
Among the 3 key factors you need to know about is the US Election which was held on 3 November!
Ahead of the United States presidential election, Donald Trump and his rival Joe Biden, along with their key leaders, were actively canvassing for votes in several important industrial states in the Midwest and the southeast of the country.
The 2020 US presidential election was scheduled for 3 November. It was the 59th quadrennial presidential election.
Trump and Biden focused their efforts on Pennsylvania, where the President continued his campaign at four locations.
Axi''s chief global market strategist, Stephen Innes, said a Biden victory in the US presidential election would be viewed more favourably than a Trump victory from an Asian perspective.
During his ''Make America Great Again'' rally, Trump said:
"We just want things to be normal," Trump told his supporters.
Biden continued his attacks on Trump''s attempts to dismantle the Obama-era healthcare policy, as well as on climate change and trade policies with China.
Bilateral negotiations between the US and China needed to be expedited to ease tensions and prevent a worse conflict between the world''s two largest military powers.
This urgency was driven by rumours that the Trump administration might deploy its military to defend islands in the South China Sea currently claimed by China.
Additionally, among the 3 key factors is the role of Bank Negara Malaysia (BNM).
According to AmBank Research, Bank Negara Malaysia (BNM) still has room to once again lower the Overnight Policy Rate (OPR), which serves as the benchmark reference rate for bank lending rates this year.
Bank Negara Malaysia''s (BNM) interest rate decision on 3 November was set as a catalyst for the Ringgit against the US Dollar.
Its Chief Economist, Dr Anthony Dass, said:
"Following the 25 basis points (bps) cut in July to 1.75%, BNM maintained the interest rate at its September Monetary Policy Committee (MPC) meeting."
The decision was partly due to the continued recovery of economic activity after it was hit hard in April.
Furthermore, it was supported by fiscal, monetary and financial measures packages.
Maintaining the OPR percentage was supported by a set of economic data pointing towards economic recovery in the third and fourth quarters of 2020, despite the rising number of COVID-19 cases.
This was because the measures taken to curb COVID-19 would not affect the economy as severely as before.
However, if the OPR were to be reduced, it would be due to downside economic risks.
Containment measures would affect states that contribute nearly 50% to the country''s gross domestic product (GDP).
Budget 2021, which was to be tabled on 6 November 2020, certainly had many parties eagerly awaiting any good news for the people and the national economy.
Finance Minister Datuk Seri Tengku Zafrul revealed that the allocation for Budget 2021 would be larger than Budget 2020, which stood at RM 297 billion.
Additionally, the government would not reduce development expenditure.
For over a decade, development spending had contributed nearly one quarter of government expenditure over the last 10 years, or less in some years.
In an interview with Sinar Harian, the minister said:
"The upcoming budget will also be more dynamic than the previous one, given the uncertainties of the current Covid-19 pandemic."
A total of RM 297 billion was allocated for Budget 2020, comprising RM 241 billion for operating expenditure and RM 56 billion for development expenditure.
Based on the chart, Budget 2020 was the second largest budget since 2011.
You may refer to the chart below for a more detailed view of Budget 2021.
These 3 key issues have, to some extent, affected the global economy and the state of the nation. As wise investors, we should pay attention and be mindful of current issues and the state of the global economy. Let us collectively hope and pray that our nation continues to prosper and remain stable across all fronts.
We hope this article has been beneficial for you!
Three main factors that influence the value of the Malaysian Ringgit are US presidential election outcomes, the national budget presentation, and the prevailing pandemic conditions. All three factors have a direct impact on foreign investor confidence and capital inflows into the country.
The US election outcome influences international trade policies and the strength of the US Dollar. When the US Dollar strengthens due to changes in US economic policy, the Malaysian Ringgit tends to weaken as investors shift capital to the US market.
Yes, the national budget presentation has a significant impact on the Ringgit. A budget that prioritises economic stimulus and development can strengthen investor confidence, while a high budget deficit can weaken the Ringgit.
Investors can diversify their portfolio with shares of export-oriented companies, as these companies benefit from a weak Ringgit. Additionally, investors should monitor current global economic issues to make wiser investment decisions.
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