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Thu_Feb_28_23:28:07_PST_2019

In previous article, RM exchange rate movement based on Brent Crude Oil and other political factors was demonstrated (Read more here)
ￂﾠￂﾠToday, let's look at the impact of GE14 to RM. The chart below shows the relationship between RM and Brent Crude Oil.ￂﾠￂﾠThe scattered blue dots are the actual data of USD/RM corresponding to respective Brent Crude Oil price from July 2005 to July 2015 while the scattered red dots are the actual data of USD/RM corresponding to respective Brent Crude Oil price from August 2015 to December 2017.ￂﾠￂﾠThe green dots are pre-GE14 data while the yellow dots are post-GE14 data in 2018. Before the 1MDB scandal was exposed, RM was strongly correlated with oil price.ￂﾠￂﾠThis is shown by the blue dashed curve (July 2005 ￢ﾀﾓ July 2017, R2ￂﾠ= 0.74).ￂﾠￂﾠAfter the 1MDB scandal was exposed, RM was weakened to about one standard deviation from the historical trend.ￂﾠￂﾠIt was trading on the red dashed curve four month before the GE14.ￂﾠￂﾠHowever, RM was further weakened to 1.5 standard deviation curve (dashed yellow curve) immediate after GE14.ￂﾠￂﾠThis could be due to the additional negative news exposed by the newly elected Government. Moving forward, RM is expected to trade along the yellow curve before Malaysia finds a sound solution to solve its financial and economic issues.ￂﾠￂﾠAccording to EIA and OECD data, oil price is projected to trade around USD69 ￢ﾀﾓ 73 per barrel in 2018 (Read more here).ￂﾠￂﾠThis suggests the RM will be trading in the range of RM4.05 to RM4.15.ￂﾠￂﾠMeanwhile, on 4thￂﾠSeptember, Standard Chartered Bank suggested the ringgit will trade at RM4.0 against the USD by end of 2018 and RM4.1 by end of 2019 (Read more here). Source: Knoema

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