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Bank Of America: Maintain Constructive Outlook

MYR

Bank of America research “take a deeper look at recent MYR weakness vs ASEAN peers and broader Asia FX, with 5% YtD depreciation vs. the USD, only outperforming North-Asian currencies which are more exposed to China growth risks. Our factor analysis shows CNY devaluation fear and USD strength overwhelming the contribution from higher exports & equity flows.”

  • “We have kept a constructive view for MYR primarily based on continued growth recovery with a diversified exports basket helping maintain the current account surplus. Consumption recovery is supported by an expansionary fiscal stance, drawdown of private pension savings and controlled inflation. That allows BNM to tighten monetary policy and keep interest rate differentials from remaining unfavourable for the MYR for long.”
  • “We recently revised our end-2022 USD/MYR forecast to MYR4.15 to account to broader USD strength. In line with our constructive view on MYR, we also recommended a relative value trade on long MYR vs short PHP (entry cross MYR/PHP spot PHP11.95, current PHP11.94, target PHP12.4, stop PHP11.7). This is based on our view of diverging growth, interest rate differentials and external accounts in favour of MYR, with risks arising from any sharp correction in commodity prices which would hurt MYR's exports, continued CNY depreciation or BNM turning dovish via its monetary policy bias again.”
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Bank of America research “take a deeper look at recent MYR weakness vs ASEAN peers and broader Asia FX, with 5% YtD depreciation vs. the USD, only outperforming North-Asian currencies which are more exposed to China growth risks. Our factor analysis shows CNY devaluation fear and USD strength overwhelming the contribution from higher exports & equity flows.”

  • “We have kept a constructive view for MYR primarily based on continued growth recovery with a diversified exports basket helping maintain the current account surplus. Consumption recovery is supported by an expansionary fiscal stance, drawdown of private pension savings and controlled inflation. That allows BNM to tighten monetary policy and keep interest rate differentials from remaining unfavourable for the MYR for long.”
  • “We recently revised our end-2022 USD/MYR forecast to MYR4.15 to account to broader USD strength. In line with our constructive view on MYR, we also recommended a relative value trade on long MYR vs short PHP (entry cross MYR/PHP spot PHP11.95, current PHP11.94, target PHP12.4, stop PHP11.7). This is based on our view of diverging growth, interest rate differentials and external accounts in favour of MYR, with risks arising from any sharp correction in commodity prices which would hurt MYR's exports, continued CNY depreciation or BNM turning dovish via its monetary policy bias again.”