Malaysia: Foreign Reserves Improves But Ringgit Weakens
§ Foreign reserves rose by US$0.6bn to US$95.3bn as at mid-September. The current reserves level is sufficient to finance 7.3 months of retained imports and is 1.1 times the redefined short-term external debt.
§ The level of reserves has risen since second half of August (US$94.7bn end-Aug; US$94.5bn mid-Aug) which we think is due to a combination of lower central bank intervention, sustained current account surpluses, and repatriation of funds from abroad. The downtrend between June to August reflected the central bank's efforts to smoothen out excessive volatility as the USDMYR weakened by 12.6% to 4.195 at end-August.
§ USDMYR opened higher at 4.31 this morning and has traded higher to 4.35 at time of writing. The recent rebound from the low of 4.20 last week has been much stronger than expected. The current movement is viewed as a corrective rebound which is expected to extend higher with the next resistance at 4.35. A clear break above 4.35 would greatly increase the odds of a break above the year's high at 4.3750. The Dollar index has been climbing from its post-FOMC plunge as markets continue to anticipate a rate hike by December.
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