US-North Korea tensions not a risk to the ringgit

PETALING JAYA: The escalating tensions between the US and North Korea does not seem to be an imminent risk to the ringgit, said FXTM vice-president of corporate development and market research Jameel Ahmad.
“While news of escalating geopolitical tensions between the US and North Korea are dominating the global headlines, investors should not currently be concerned over a potential shift of volatility in the ringgit,” he said in a statement last Friday. The ringgit weakened slightly to 4.2950 against the US dollar at 5pm last Friday.
He said the “war of words” between US President Donald Trump and North Korea after the former’s “fire and fury” comments has largely dictated the direction of markets mid-week last week, weakening risk appetite but benefiting safe-havens like gold and the Japanese yen.
“This period of risk-off might continue until these tensions cool down, and this is seen as a potential risk for emerging market currencies that are known to suffer when investors are less prepared to take on risk.
“It is worth pointing out the risk premium being priced into the financial markets is not actually that heavy, but the fact that this has transpired during a very quiet period of trading makes the losses seem worse than they actually are,” he added.
Jameel said it would be wrong to suggest that investors should not monitor these tensions, but noted that they are nothing new and have been brewing for some time.
He said investors would not have reacted and the markets would have remained in summer mode if Trump’s comments had not come across as aggressive as they did.
Meanwhile, Bank Negara Malaysia has been taking a strong stand against the trading of the ringgit in the offshore market.
Last week, the central bank said the trading of ringgit in any shape or form overseas is against Malaysia’s policy.
It said that the recent introduction of ringgit futures trading at the Singapore Exchange and the Intercontinental Exchange (ICE Futures Singapore) was inconsistent with Malaysia’s foreign exchange administration policy and rules.
It reminded all market participants to observe existing rules, adding that appropriate action under the law would be taken against any person not complying with its rules.