Ringgit Steady With Emergency Declaration Still Front & Centre

Spot USD/MYR trades -10 pips at MYR4.0420 after rejecting resistance from the 50-DMA, today intersecting at MYR4.0710. Locally, focus remains on the state of emergency declared by the Malaysian King earlier this week.

• The declaration was justified by the need to stop further spread of new Covid-19 infections as Malaysia is struggling to contain the resurgence of the virus. The state of emergency will last through Aug 1.
• Malaysiakini cited Malaysia's Director-General of Health as predicting that the coronavirus curve will flatten in 12 weeks, based on the current data.
• PM Muhyiddin's gov't has faced accusations of a power grab, as the declaration of emergency entailed the suspension of parliament and granted the gov't special powers. This came at the time when the gov't was backed by (at best) a razor-thin parliamentary majority, while tensions between PM Muhyiddin and his main coalition partner was escalating.
• Observers took note of the muted response of UMNO to the declaration of emergency, despite earlier sabre-rattling from the party's leaders directed at PM Muhyiddin. Speculation has emerged that UMNO might postpone its general assembly scheduled for Jan 31, during which its members will decide on the future of UMNO's alliance with PM Muhyiddin's BERSATU.
• The state of emergency was announced just after the gov't imposed lockdown on regions accounting for roughly 2/3 of national GDP, which prompted analysts to trim their growth forecasts for Malaysia.
• Losses past Jan 8 low of MYR4.0285 would clear the way to Jan 4 low of MYR3.9957, a key near-term support. Bulls need a clearance of the 50-DMA/Jan 12 high at MYR4.0709/60 would open up Dec 7, 2020 high of MYR4.0885.
• The Malaysian docket is virtually empty during the remainder of this week, with focus already on next week's monetary policy decision from the BNM.