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Goldman Sachs Weigh In On MYR Weakness, Recommend Short Vs. THB

MYR

Goldman Sachs note that “coming into the year, the Malaysian Ringgit (MYR) was one of the most preferred currencies in the region given that Malaysia: 1) is a net commodity exporter; 2) benefits from still-strong global chips demand; and 3) is reopening its economy post Covid. However, despite the rally in commodity prices, the MYR has underperformed most NJA currencies, prompting a debate among our clients about why the MYR has not rallied.”

  • “To try to capture the drivers of USD/MYR, we conducted a simple multi-variable regression with the USD/MYR level as the dependent variable and explanatory variables that included business and financial institution foreign currency deposits, interest rate differentials, DXY (index), Brent crude oil prices and inflation.”
  • “Our analysis suggests that the largest contributor to the weak MYR this year was businesses' accumulation of foreign currency deposits and narrowing interest rate differentials with the USD. Our hypothesis here is that, while companies have been benefiting from stronger exports, they have been keeping their proceeds in foreign currency, hence the windfall from exports has not translated into a stronger local currency.”
  • “Going forward, if our forecasts are correct, then the U.S. Fed funds rate (our terminal rate forecast is 3.25-3.50%) will be above Malaysia's policy rate (where our terminal rate is 3.00%) by September. Moreover, we think businesses may prefer to hold a larger amount in foreign currency deposits to facilitate import bills/foreign currency liabilities, and the USD has been on an uptrend.”
  • “We recommend going short MYR vs long THB at THB7.95, with a target of THB7.30, and stop-loss set at THB8.30. We have had a long-held bullish THB view, predicated on a rebound in tourism, lower oil prices (from their peak earlier in the year) and lower freight costs. Meanwhile, although we think oil prices will stay elevated, the unfavorable move in rate differentials and continued accumulation of foreign currency will be the dominating factors underpinning MYR weakness.”
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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