Malaysian ringgit hovers near six-year low ahead of GDP data

The Malaysian ringgit has been trading weak this week and has reversed more than half of the 2.5% rally of the last week with just a day to go for the fourth quarter GDP data.

USD/MYR rallied to an 8-day high of 3.6049 on Wednesday, meaning a 0.56% fall by the ringgit, which is now down 1.6% so far this week. Last week's rally had taken it to a one-month high of 3.5378.

The pair is approaching once again the near six-year high it touched on 29 January. At the pair's January peak of 3.6421, the Malaysian currency was down 13% since September when it started the current downward trend.

Malaysia will release its gross domestic product data for the December quarter on 12 February and the consensus is for the annual growth rate to fall below 5%. It was in the first half of 2013, the country last posted below-5% annual expansion rate.

Despite the loses this week, the ringgit is still trading higher from its January closing and a positive closing this month will mean its first monthly gain after five straight months of losses.

On the higher side, the pair has its first target at 3.6421 and if that is broken, the next major level will be 3.7550, the 2009 high. Intermediate levels will be 3.6600 and 3.7100.

On the downside, the pair will first target 3.5080-3.4965 in case of a break of the last week's low. There are many intermediate levels until 3.3515 but as long as that holds, the pair will have its upside risks relevant.

Malaysia will release January inflation numbers six days after the GDP data which will also be crucial for the ringgit.

After making a 25 basis point hike in the main rate that took it to 3.25%, the Bank Negara Malaysia, the Malaysian central bank, has been keeping the fire under its belly.

The slide in global crude prices is generally positive for growth in Asia but Malaysia has downside implications as well. It is among the two Asian countries with negative outlook along with Mongolia at Fitch Ratings.