Ringgit Potentially Stronger, CPI Data Almost Melts Investors' Hopes!


 The ringgit bounced higher this morning against the US dollar after the Consumer Price Index (CPI) report rose higher than expected and made investors uneasy.

At exactly 9 this morning, the ringgit was at 4.6405 against the US dollar from yesterday's value of 4.6425.

According to the Chief Economist of Bank Muamalat Malaysia, Mohd Afzanizam Rashid said the CPI and Core CPI report showed higher than expected increases in December at 3.4% and 3.9% respectively compared to consensus estimates of 3.2% and 3.8%.

However, the bond market is seen exhibiting a decline in yields and strengthening investors' expectations for interest rate cuts.

Two- and 10-year US Treasury yields fell by 6.0 and 11 basis points to 4.25% and 3.97% respectively. Meanwhile, the US Dollar Index (DXY) decreased 0.04% to 102.325 points.

He further said that the high increase in CPI data was largely supported by the increase in the transportation sub-index due to the continued increase in motor vehicle insurance. It has increased by 20.3% in December as insurance premiums have increased due to high skill costs.

So, the increase in inflation data is not due to demand and trend. This could happen due to the market not being confident that the Fed will change its forecast in favor of the expected interest rate cut later.

Meanwhile, the ringgit traded lower against a group of major currencies. It opened weak against the euro, the British pound and the Japanese yen compared to yesterday.

In fact, the local currency is stronger than the Asean currency group. It strengthened significantly against the Singapore dollar and the Philippine peso, but experienced slight gains against the Indonesian rupiah and the Thai baht.