In previous article, RM exchange rate movement based on Brent Crude Oil and other political factors was demonstrated (Read more here). Today, let's look at the impact of GE14 to RM.
The chart below shows the relationship between RM and Brent Crude Oil. The 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. The 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. This is shown by the blue dashed curve (July 2005 – July 2017, R2 = 0.74). After the 1MDB scandal was exposed, RM was weakened to about one standard deviation from the historical trend. It was trading on the red dashed curve four month before the GE14. However, RM was further weakened to 1.5 standard deviation curve (dashed yellow curve) immediate after GE14. This 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. According to EIA and OECD data, oil price is projected to trade around USD69 – 73 per barrel in 2018 (Read more here). This suggests the RM will be trading in the range of RM4.05 to RM4.15. Meanwhile, on 4th September, 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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