Weakening Ringgit Forces Bank Negara To Curb Offshore NDF Market

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KUALA LUMPUR – The Malaysian ringgit continued to weaken against the greenback, falling by 0.73% to a near 10-month low as a U.S. interest rate hike is being anticipated by the market.

The ringgit was Asia’s worst-performing currency since Republican Donald Trump’s surprise triumph in the U.S. presidential election and has weakened by more than 4.0% since the election results.

As of 10.25 a.m., the ringgit was trading at RM4.3813 against the U.S. dollar, according to the EdgeMarkets report.

In a forex report, Ambank Group Research said it expects the Malaysian ringgit to fluctuate in the range of RM4.320 and RM4.350 against the U.S. dollar.

Lukman Otunuga, research analyst at ForexTime, meanwhile shared that from a technical standpoint, the U.S. dollar index is extremely bullish on the daily timeframe, as prices are trading above both the 20 and 200 simple moving average.

Meanwhile, an international news agency said foreign banks in Malaysia have been asked to make a written commitment to the central bank to stop trading the ringgit in the offshore non-deliverable forwards market in the bank’s latest move to protect a weakening currency.

Photo credit AFP
Photo credit AFP

Quoting banking sources, Reuters said foreign banks have been sent a form letter to sign, which asks them for an “unconditional representation and commitment” to stop trading in any offshore Malaysian ringgit non-deliverable forwards or offshore derivatives.

The letters were sent by banks in Malaysia who hold bonds and other Malaysian assets as custodians for foreign banks. The form letters are addressed to Bank Negara Malaysia.

Two separate sources at banks confirmed getting the form letter, which Reuters reviewed.

The letters also asks financial institutions to provide a detailed plan to the central bank if they need to make ringgit transactions onshore and to seek help from Malaysian financial institutions for any foreign exchange transaction needs.

Bank Negara in a statement to Reuters on Wednesday confirmed it has made the request through banks in Malaysia.

“Bank Negara Malaysia has requested through onshore banks that any non-resident banks, which transact in the forex market, to attest that they are not and will not engage in NDF related transactions,” the Bank Negara statement said.

Foreign holdings account for 40 percent of the total outstanding bond market in Malaysia, one of the largest foreign ownerships in Asia.

Foreigners have been fleeing the Malaysian market in a global bond rout following Donald Trump’s election as US President last week, which sent the dollar soaring and has hit emerging market currencies particularly hard.