Market Setup of the Day: Leveraging the Malaysian Ringgit vs. The Euro


While the European Union's wounds from Brexit, the Italian referendum, and banking policies are still open, the opportunity for the Malaysian Ringgit (MYR) to leverage an advantage over the European Euro (EUR) has the possibility of presenting itself.

E.U. bond yields rose and the EUR lost value on Thursday behind the announcement that the European Central Bank said it would prolong its bond purchase program, but surprised investors by scaling back on how much it will spend each month. The EUR saw its biggest one-day percentage drop against the  US dollar since June, after the ECB said it would reduce its bond buying program to 60 billion euros a month from 80 billion, but extended the term of purchases from April to December 2017.

"Currencies are reacting more to the extension and bonds are focused on the taper," says Frances Donald, senior economist at Manulife Asset Management in Boston. "The total announcement today is more easing than expected. It may take more time for the bond market to recognize that."


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From the other side of this equation, we find the MYR recovering from a monetary beating. The MYR is also trying to remove the stigma of being the Asian Association's worst performing currency. A swift and surprise move by its central bank to ease the currency's sharp fall has led to some stability. The MYR can also be grateful for higher oil prices. The MYR has been gaining in value the last few days and stood at 4.4290 against the US dollar at 2.58pm on Thursday, recovering from the  low of 4.45 vs 1 US dollar it recorded earlier this month. Against the Singapore dollar, the ringgit was at 3.123 vs 1 Singapore dollar.

This pairing may have the potential of allowing the MYR to leverage an advantage over the EUR if the current trends continue.