KUALA LUMPUR (Sept 22): Malaysia's daily foreign exchange (FX) turnover on Wednesday (Sept 21) jumped to its highest on record since 2017 at US$22.16 billion (RM101.21 billion), from US$15.06 billion on Tuesday, according to Bank Negara Malaysia's (BNM) latest update as FX markets took a cue from higher US interest rate prospects to fight inflation and as investors weighed the possibility of a Russia-Ukraine war escalation.

Several hours before the US' Wednesday announcement of a 75-basis-point hike in interest rates to between 3% and 3.25%, it was reported that Russia President Vladimir Putin on Wednesday ordered Russia's first military mobilisation since World War Two and backed a plan to annex swathes of Ukraine, which Russia invaded since Feb 24, 2022.

Such sentiments had led to a depreciation in world currencies including the ringgit against a strengthening US dollar, which saw higher demand from investors seeking higher returns from US interest rate hikes and as they sought safety in the US dollar, which is deemed a haven in times of geopolitical uncertainties.

At the time of writing on Thursday, the ringgit weakened to 4.5697 against the US dollar after depreciating past the 4.5700 level earlier.  

Prior to BNM's Wednesday daily FX turnover update, Malaysia's highest daily FX turnover in BNM's data, which dates back to 2017, was recorded at US$21.95 billion on April 30, 2019.

For now, economists said it is still a US dollar play as anticipation of more US interest rate hikes to above 4% is expected to favour the US dollar against other currencies.

"On the USD/MYR, there is still upward [depreciation] pressure on the local currency (ringgit)," AmBank (M) Bhd economists wrote in a note on Thursday.

"The aggressive monetary tightening by the Fed (US Federal Reserve) and complemented with the ongoing external headwinds should now see the local currency trade close to 4.60 against the US dollar.

"Our initial view of the local currency retracing back towards 4.45 levels by end of 2022 could be tough. Hence, our outlook for the USD/MYR is now between 4.45-4.50 levels as the baseline with upside risk at 4.55-4.60," they said.

RHB Bank Bhd economists and analysts said the US dollar will remain stronger for longer against Asian currencies.

They said the US dollar index (DXY index), which measures the US dollar against a basket of foreign currencies, is expected to rise to 116 in the first half of 2023 (1H23).

"The DXY index will trade at the upper end of our forecast range of 107-112 for 4Q22, with the balance of risks skewed towards a breach of 112.

"In 1H23, the balance of risks is skewed towards the top end of the DXY index range being around 114-116," they said.

It was reported that the US dollar pushed to a fresh two-decade high versus major peers on Thursday, propelled by the Fed's hawkish outlook for interest rates and after Putin ordered the country's first mobilisation since World War Two.

"The dollar index, which measures the currency against a basket of six counterparts including the euro, sterling and yen, rose as high as 111.79 for the first time since mid-2002," Reuters reported.

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BNM: Malaysia's daily FX turnover highest YTD as ringgit trades at weakest level against US dollar in 24 years