How does global risk appetite affect the Malaysian currency?

Question

Accepted Answer

Global Risk Appetite Influences Malaysian Ringgit's Performance

The Malaysian ringgit's value is significantly influenced by global risk appetite, which describes the general willingness of investors to take on riskier assets. When global risk appetite wanes, investors tend to move their capital away from emerging markets and into safer assets, typically denominated in US dollars. This shift in capital flows can weaken currencies like the ringgit. Conversely, a strong global risk appetite generally sees capital flowing into emerging markets, supporting currencies such as the ringgit.

The absence of a stable or rising crude oil price, a key commodity for Malaysia as a net exporter, also contributes to the ringgit's struggles when global risk appetite diminishes. The market often views crude oil price movements as an indicator of global economic health and demand, thus indirectly reflecting risk sentiment. When oil prices are low or volatile, it can signal underlying economic weakness or reduced demand, further discouraging investment in riskier assets and negatively impacting the ringgit. This was observed in early April when crude oil futures, like West Texas Intermediate (WTI), remained below US$20 per barrel, failing to provide the expected stabilising "petrodollar" inflows.

The US dollar's resilience further compounds the ringgit's challenges during periods of low global risk appetite. As investors seek perceived safe havens, demand for the US dollar increases, strengthening its value against other currencies. This makes it more expensive for countries to import goods and services priced in dollars and can lead to imported inflation. The ringgit's performance against other major currencies, apart from the euro, showed some strength, appreciating against the Japanese yen and Singapore dollar, and the British pound. However, its slippage against the euro also indicates broader currency market dynamics at play.

Reading history

Hide →

This history is cleared when the page is closed.

How does global risk appetite affect the Malaysian currency?

Loading

Was this article helpful?

Helpful

Not helpful

Report an issue

1

0

0

Share with friends