Malaysian ringgit. How will the crisis affect the national currency of Malaysia?


Dear friends, 

We’ve become witnesses to an unfolding international crisis. Still, not everyone is equally affected, even with globalization considered. Obviously, those countries that managed to escape the pandemic and whose economies are less dependent on global production chains are the gainers.

Fundamental analysis

Amid the unfolding tragedy, the economy of Malaysia and the Malaysian ringgit are an interesting object for analysis.

According to Outbreak.my, the Malaysian government localized the virus successfully and cancelled the Italian and Spanish scenario.   According to the data above, over a half of the detected cases are localized in three states: Selangor, Kuala Lumpur and Johor. Adequate and timely measures to close external borders and restrict movement inside the country proved to be efficient and prevented the pandemic from spreading without taking tough punitive actions. The operation of small and medium-sized businesses was suspended, but a total lockdown wasn’t introduced. Food stores continue working, both hypermarkets and small shops like 7-Eleven. Banks, pharmacies, hospitals, emergency and telephony services, and other service companies work as well.

In other words, the quarantine here is soft, which allows avoiding economic chaos and keeping a positive mindset despite the pandemic.

The highly developed public health system and hospital equipment in Malaysia are worth a mention too. The country boasts a high level of medical tourism. 

In 2014, Malaysia ranked the first on the list of top countries for medical tourism, according to the Nomad Capitalist consulting firm. In 2020, even before the pandemic of COVID-19 broke out, the experts estimated prospective profits from this business at $3.2 billion. Ironically, Malaysia may even benefit from the pandemic and gain a huge flow of medical tourists when the borders have been opened again.

The chart above shows that coronavirus deaths are decreasing in the country.

At the same time, the number of new cases isn’t growing while the number of recovered people (green area) has exceeded the number of new cases. On the whole, based on those data we may conclude that the epidemiological picture in Malaysia is quite good and the scenario is quite positive. There’s a strong possibility that the quarantine will be lifted as early as 15th April. When it comes to economic support measures, the Malaysian government has been reserved and limited the support package to 11 billion Myr, which is 0.7% of GDP, approximately.

The relief measures have been aimed mostly at SMEs and provision of affordable loan interest rates from 3.5% to 7% so far. Besides COVID-19, it’s the fall of oil prices that clobbers the economy of Malaysia too. Thirty % of the country’s whole budget comes from Petronas, the national oil and gas company. This fact considered, the Malaysian economy is still much dependent on oil prices.

https://www.tradingview.com/x/qRZQosMZ/

The chart above confirms this statement. The blue chart is the price of USD to MYR and the orange chart is the price of Brent. It’s obvious that these two charts are correlated.  On the other hand, there’s a 70% dependence of the price of petrol on the price of oil, so petrol grew 2 times cheaper, which is a good relief measure for SMEs.

The government plays quite an important role in economy here. When 1 oil barrel cost over 60 USD, the government would subsidize prices at petrol stations and thus save the production of goods and services whose added value mostly comes from cargo transportation.

Technical analysis

https://www.tradingview.com/x/f4ktEV0k/

I’d like to note that the government’s role isn’t limited solely to regulating oil prices. The chart above shows the Central bank of Malaysia maintained the rate of ringgit in the period from 1998 to 2005. Such policies blur the global wave structure.

https://www.tradingview.com/x/TSVqDD3G/

Despite that fact, the wave structure is quite clear on the 3-month time frame. The chart above shows that the 5-wave bullish impulse of super cycles starts in the 80s. The third wave is very long, so the fifth wave may be truncated and limited by the peak of the third wave that is located at the historical high of 4.775 MYR.

https://www.tradingview.com/x/MAxQhWRt/

If we analyse the weekly time frame, we will also see a bullish impulse with a long third wave just like on the previous time frame (green wave structure), which allows us supposing the local wave structure will end near the peak of the third wave of 2016.

https://www.tradingview.com/x/tcL3QHDa/

o estimate an eventual scenario of the future movement, I’ve built the projection of the annual TM candle – the black rectangle. We see that the price chart has already crossed the limits of the projection, which is a sign of strong overboughtness. So, there’s a very weak chance that the USD/MRY will grow above 4.48 this year.

On the other hand, the support line of 4.20 is clearly seen. The price isn’t likely to drop below this level.

Most probably, the price of USD/MYR will have consolidated in the range of 4.48 – 4.20 by the end of the year. Then, the price may grow to 4.54 MYR next year (the peak of the third wave of the inserted 5-wave impulse, marked in blue), the level of the third wave’s peak in the wave structure of a higher degree (marked in green).

The growth peak of USD/MYR is in the area of 4.54 – 4.77. The pair is unlikely to update its historical maximum during the current super cycle. Fundamentally, the fall of the ringgit’s price is justified because the oil price won’t recover to its value seen prior to the crisis, according to preliminary estimates.  At the same time, soft devaluation of the national currency will allow the economy to recover faster, become even more attractive for development of tourism and boost the competitiveness of exports.  

I’d like to remind you that all materials are provided for educational purposes only. They aren’t financial advice and don’t guarantee any profits. All trading decisions you make are your responsibility only.

Take care of yourself and your money!

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Best regards,

Michael @Hypov

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