Election Outcome Set To Undermine Ringgit

The confluence of political uncertainty and jitters surrounding China's COVID-19 situation resulted in a lower close for the Malaysian ringgit. Spot USD/MYR finished at MYR4.5800, up 238 pips on the day, extending its recovery from Nov 16 cyclical low of MYR4.4975.

• The RSI is now back from oversold territory, which indicates potential for a bullish reversal. A return above the recently breached 50-DMA (MYR4.6394) would confirm that topside momentum is recovering. Beas continue to target MYR4.4975.
• The composition of the next government remains shrouded in uncertainty after Malaysia's 15th general election yielded a hung parliament. Party leaders willing to form the administration must submit evidence of support from at least half of the MPs to the lower house speaker by 2pm tomorrow. Both Pakatan Harapan's Anwar and Perikatan Nasional Muhyiddin have made contested claims that they have the numbers, with caretaker PM Ismail Sabri's Barisan Nasional emerging as a kingmaker.
• Regardless of the outcome of coalition talks, the dismal performance of Barisan Nasional means that the bloc will not be able to implement Budget 2023, which effectively served as its manifesto. Furthermore, the incoming administration will be fragile given the tense relations between major political groups and Malaysia's recent history of political instability.