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Aug 2017 14

Gradual steps to control shadow banking problem

DEALING with the 26.7 trillion yuan shadow banking industry in China, which falls out of the balance sheets of banks, may require tougher measures but the fear is that it may trigger huge risks.“True deleveraging will...

DEALING with the 26.7 trillion yuan shadow banking industry in China, which falls out of the balance sheets of banks, may require tougher measures but the fear is that it may trigger huge risks.

“True deleveraging will require some painful steps, such as denying businesses new funding, letting more companies fail and accepting the potential increases in unemployment that result.

“That won’t be fun for anyone, but it will signal – as nothing else has – that China is finally serious about these problems,’’ said Bloomberg.

The current gradual approach to tackle this massive “bubble” is viewed as a way to avoid overadjustment that can derail growth.

 

“The risk in shadow banking is much higher as it cannot be controlled via standard tools of monetary policy, and the government is unable to help if players get into trouble.

“These players have no direct access to the money market; they can grow very big and resort to unsound levels of leverage, as there are no minimum capital requirements.

“They are too big to fail, and yet outside the reach of the central bank. Essentially, they are constrained by the extent to which others are willing to let them have access to money,’’ said Pong Teng Siew, head of research, InterPacific Securities.

 

Wealth management products (WMPs), which offer much higher yields than traditional bank deposits, have seen their popularity crimped.

“The regulatory crackdown this year – mostly in the form of more stringent guidelines on use of financial products – has seen the amount of WMPs outstanding taper off from a peak in April.

“In July, the bank watchdog is said to have told some lenders to cut the rates they offered on the products,’’ noted Bloomberg.

Shadow financing, a factor behind China’s property-price surge, has also come under the hammer. Regulators this year banned private-equity lending to developers for land purchases and banks were told in March to submit reports on their entrusted investments – funds that Chinese lenders farm out to external asset managers.

In the area of repurchase agreements (repos), where participants can get cash for set periods, a key tool to rein in borrowing was to boost funding costs in the money market. The amount of repos outstanding has come off since reaching a peak at the end of June, said Bloomberg.

Gradual approach

“The authorities are expected to adopt a measured approach to restrain shadow banking to avoid over-adjustment via dampening of consumption and investment,’’ said Lee Heng Guie, executive director, Socio Economic Research Centre.

Growth in money supply (M2) has paced to a record low of 9.6% in May, said Lee, adding that the authorities are expected to step up regulations to curb risks.

M2 is a measure of money supply that includes cash, checking deposits, savings deposits, money market securities, mutual funds and other time deposits.

“China has been addressing this issue quite seriously but tactfully. Any drastic move will trigger systemic risks as the size of the sector is huge,’’ said Danny Wong, CEO, Areca Capital.

“It will be a delicate balancing act for China, which is determined to address economic imbalances via measures to deleverage.

“But these steps have to be taken in such a way that they do not pose a significant threat to the growth trajectory. This reflects its deep concern over possible repercussions, should the economy start to get unhinged,’’ said Nor Zahidi Alias, chief economist, Malaysian Rating Corp.

 

Source: The Star
 

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Aug 2017 10

Ringgit volatility rises before U.S. CPI report

KUALA LUMPUR: A gauge of anticipated ringgit volatility rises for a second day before a U.S. inflation report on Friday that may provide guidance about when the Fed will resume raising interest rates.* 1-month implied...

KUALA LUMPUR: A gauge of anticipated ringgit volatility rises for a second day before a U.S. inflation report on Friday that may provide guidance about when the Fed will resume raising interest rates.

* 1-month implied volatility for US/MYR climbs 1bp to 5.72%

* USD/MYR little changed at 4.2847 after rising 0.2% Monday

** Support 4.2760, 4.2663, 4.2505; resistance 4.3022, 4.3055, 4.3217

 

* Ringgit may come under pressure as a meeting between oil producers to address oversupply is likely to disappoint, says Sean Yokota, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore


** Traders have reduced short US dollar positions after last week’s NFP report and this may continue if there’s a strong print in U.S. inflation data this Friday

Still, emerging markets remain attractive in the face of rising interest rates in the developed world as growth is holding up and inflation remains contained

Ringgit is among EM FX that Morgan Stanley favours, according to a report released Monday

Co. suggests using Europ to fund purchases of EM currencies as EM remains fundamentally in good shape and valuations look cheap against EUR

Malaysia’s 10-year goverment bond yield little changed at 4%

Foreign ownership of Malaysian sovereign and corporate debt securities fell 1.2% to RM192bil in July from previous month: central bank data showed late Monday
The souece


Although there’ll be sizable bond redemptions from August to October, there are unlikely to be significant maturity-driven outflows as foreign ownership of Islamic securities is low and holdings of other notes have been reduced, Winson Phoon, a fixed-income analyst at Maybank Investment Bank, wrote in note Monday

Second half will be challenging as external risks such as a change in market pricing on the pace of further Fed hikes may shift broad EM flow sentiment

Global funds bought net RM151.2mil of Malaysian stocks last week, a 4th week of purchases: MIDF Amanah Investment - Bloomberg

 

Source: The Star

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Aug 2017 7

Bank Negara international reserves rise to US$99.1bil

KUALA LUMPUR: Bank Negara international reserves rose US$300mil to US$99.4bil as at July 31, 2017 from US$99.1bil on July 14, 2017.The central bank said on Monday its reserves, in ringgit terms, rose to RM427bil from RM425....

KUALA LUMPUR: Bank Negara international reserves rose US$300mil to US$99.4bil as at July 31, 2017 from US$99.1bil on July 14, 2017.
The central bank said on Monday its reserves, in ringgit terms, rose to RM427bil from RM425.4bil as at July 14.

It said the reserves position was sufficient to finance 7.9 months of retained imports and was 1.1 times the short-term external debt.

The main components of the reserves are foreign currency reserves (US$93bil), International Monetary Fund reserves position US$800mil, Special Drawing Rights or SDRs (US$1.1bil), gold (US$1.5bil) and other reserve assets (US$3bil).

Source: The Star
 

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Jul 2017 26

Asia stocks inch up

TOKYO: Asian stocks edged up early on Wednesday after Wall Street indexes notched record highs, while the dollar was steady as investors awaited the Federal Reserve's policy decision later in the day for more clues on its...

TOKYO: Asian stocks edged up early on Wednesday after Wall Street indexes notched record highs, while the dollar was steady as investors awaited the Federal Reserve's policy decision later in the day for more clues on its tightening plans.

The Fed concludes a two-day meeting later on Wednesday, and is widely expected to keep interest rates unchanged.

With a rate hike not in the picture this time, the focus will be on the Fed's statement, with markets looking for signs of when the central bank will begin paring its massive bond holdings and next raise rates. A statement is expected at 1800 GMT.

"The stock markets are generally of a view that the Fed is not in too much of a hurry to normalize monetary policy. So equities would be able to take this Fed meeting in stride if the Fed's statement is in line with such views," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

A more assertive policy message by the Fed, on the other hand, was expected to lift U.S. yields and boost the dollar.

MSCI's broadest index of Asia-Pacific shares outside Japan, rose 0.1 percent, drawing support after the S&P 500 climbed to an all-time high overnight on well-received results from McDonald's and Caterpillar in addition to bank share gains.

Caterpillar's results smashed expectations and the company raised its full-year forecast for the second time, underscoring strength across its businesses and a steady recovery in demand from China.

South Korea's KOSPI stood little changed and Australian stocks rose 0.9 percent as investors awaited inflation data. Price pressures are expected to remain mild, which would add to views that rates will remain at record lows for some time to come.

Japan's Nikkei added 0.8 percent after the dollar extended an overnight rally against the yen to pull away from seven-week lows.

The U.S. currency was last traded at 111.980 yen for a gain of 0.1 percent.

The greenback was lifted as investors gained some hope that President Donald Trump could push through his expansionary fiscal agenda, after the Senate passed a motion to proceed on a repeal of Obamacare, which Trump and Republicans have vowed to undo.

The dollar also received support from a rise in U.S. Treasury yields. Long-dated Treasury yields jumped by the most in almost five months on Tuesday as Wall Street hit new highs and on reduced demand for safe-haven bonds. [US/]

The euro was 0.1 percent lower at $1.1638, pulling back from a two-year high of $1.1712 hit on Tuesday on a stronger-than-expected German Ifo business survey.

Expectations that the European Central Bank would begin phasing out its easy monetary policy sooner rather than later have supported the common currency this month.

The dollar index against a basket of major currencies was 0.1 percent higher at 94.144 , managing to put some distance between a 13-month low of 93.638 plumbed on Tuesday.

U.S. political uncertainty has recently hurt the dollar, with the Trump administration dogged by investigations into alleged Russian meddling in the U.S. election.

In commodities, crude oil extended its surge after jumping overnight on data showing a sharp fall in U.S. crude stocks last week.

U.S. crude rose 1 percent to $48.36 a barrel and Brent added 0.7 percent to $50.56 a barrel.

Gold struggled as improved investor risk appetite in the broader markets curbed the precious metal's appeal. Spot gold was 0.1 percent lower at $1,247.25 an ounce following its ascent to a one-month peak of $1,258.79 on Monday. 


Source: The Star

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Jul 2017 18

Exports boost for economy

PETALING JAYA: Asean economies’ growth has so far been driven by exports recovery, with domestic demand factors including private consumption still patchy.Morgan Stanley Research economists said in a report that private...
PETALING JAYA: Asean economies’ growth has so far been driven by exports recovery, with domestic demand factors including private consumption still patchy.
Morgan Stanley Research economists said in a report that private comsumption had been uneven across the five markets it covered.
They noted that private consumption continued to register a healthy pace in Malaysia and the Philippines but “moving sideways” in Indonesia while it had been less inspiring in Thailand and Singapore.
Malaysia, which posted a 32.5% year-on-year surge in exports for May, will be releasing second-quarter ended June 30 gross domestic product (GDP) data on Aug 18.
Private consumption in Malaysia has been resilient despite inflationary pressure, low-wage growth and higher unemployment, with several analysts attributing gains in the stock market for an improvement in still-fragile consumer confidence. The FBM KLCI has gained nearly 7% year-to-date.
Morgan Stanley expects consumer spending to remain healthy, growing at 6.6% this year and 6.4% next year, with exports recovery to give a boost to employment and wage growth.
While the outlook for Singapore’s economy has improved after the island-state narrowly avoided recession with a 0.4% GDP growth for the second quarter ended June 30 compared to the first quarter’s 1.3% contraction, private consumption remains tepid.
On a year-on-year basis, GDP expanded 2.5% for the second quarter compared to the same quarter last year, which was also revised to 2.5% from 2.7%.
Singapore’s growth was mainly driven by an improvement in manufacturing activities, especially from electronics and precision engineering industries, due to stronger global demand.
Notably, the services sector, making up two-thirds of its economy, recovered to a growth of 0.4% in the second quarter compared to the 2.7% contraction in the first quarter.
AmBank Research chief economist Anthony Dass said in Singapore’s case, growth sustainability really depended on the outlook of the services sector and whether it could absorb any shortfall arising from the manufacturing sector.
However, signs continue to show improvement in domestic-economy factors, with Dass noting that the property market may have hit rock bottom.The construction sector, another domestic-economy indicator, also showed recovery, expanding 4.3% compared to the previous quarter, the strongest showing in six quarters.
 
Source: The Star
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Jul 2017 11

Stronger ringgit to drive auto stocks

PETALING JAYA: Automotive stocks are expected to perform better in the second half of 2017, driven by stabilising loan approvals, car launches and further strengthening of the ringgit. MIDF Research in a report...

PETALING JAYA: Automotive stocks are expected to perform better in the second half of 2017, driven by stabilising loan approvals, car launches and further strengthening of the ringgit. MIDF Research in a report yesterday said loan approval rates had stabilised between 50% and 60% over the past 12 months, with car loan application trends showing improvements due to steady demand.

The research house also said auto players had become more creative with their financing solutions, such as offering lower monthly repayments.“The idea is to lower the monthly commitment of car buyers, allowing them to better qualify for financing, as approval by financial institutions places high priority on a borrower’s monthly loan commitment relative to his net monthly income.” MIDF said sector earnings recovery will be underpinned by more favourable foreign exchange that will lower import cost.“Imported components account for 25% to 35% of total cost for the non-national makes. The ringgit has strengthened from the year low of RM4.50 to the dollar to the current RM4.30 levels.” Similarly, the research house said the ringgit had also strengthened against the yen.

“All the auto players under our coverage will benefit from the stronger ringgit, namely Bermaz Auto Bhd (BAuto), mainly from the yen and UMW Holdings Bhd and Tan Chong Motor Holdings Bhd from the weaker dollar. “For BAuto, every 1% change in the yen will impact 2018 earnings by 3%. For UMW and Tan Chong, every 1% change in the dollar will impact 2017 by 6.5% and 35% respectively.” Among the key new models to come, said MIDF Research, are Mazda’s new CX5 and CX9 (in October and this month respectively), Toyota’s indicative four new models (all in the second half of 2017) and possibly a new Myvi from Perodua (later this year). “We expect these launches to drive a marked improvement in total industry volume (TIV) from July onwards.”

The research house added that the downward consensus earnings revisions in the past two years have reached a bottom and has in fact rebounded for selective stocks, such as UMW and BAuto. “This upward revision was driven largely by expectations of a rebound in sales volumes but has yet to factor in improvements in forex expectations, suggesting further possible upside to forecasts if the ringgit strength sustains.” According to the Malaysian Automotive Association (MAA), year-to-date May vehicle sales rose 7% to 234,186 units compared with 218,121 units in the first five months of 2016. The MAA projects a 1.7% year-on-year TIV growth to 590,000 units this year, and will have its second biannual briefing on local vehicle sales performance this month. TIV hit 580,124 units last year, meeting the association’s target of 580,000 units for 2016. The last time TIV fell below the 600,000-mark was in 2009 with 536,905 units. In 2010, sales hit 605,156 units. Vehicle sales hit a record-breaking 666,674 units in 2015.

 

Soure: The Star

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Jul 2017 4

Mohd Irwan: Malaysia's 2017 GDP growth can hit 5%

CYBERJAYA: Malaysia's economy can grow 5% or more this year, based on the country's first-half performance, said Treasury Secretary-General Tan Sri Dr Mohd Irwan Serigar Abdullah."The country's economy is performing well,...

CYBERJAYA: Malaysia's economy can grow 5% or more this year, based on the country's first-half performance, said Treasury Secretary-General Tan Sri Dr Mohd Irwan Serigar Abdullah.

"The country's economy is performing well, and I personally think we can achieve 5% or more in GDP growth, backed by the strengthening economic environment, the increase in exports and investments, and job creation.

"We also see the oil price stabilising at between US$47 and US$50 per barrel, and I think the ringgit will be getting better," he said, commenting on a recent Bloomberg report, "The Ringgit Is Easily Asia'ss Strongest Currency", which said the ringgit was the most stable major Asian currency during the first quarter of this year.

Malaysia's economy recorded 5.6% in the first quarter of this year, boosted by strong domestic demand and private expenditure.

Mohd Irwan, who is also chairman of the Malaysian Global Innovation and Creativity Centre (MaGIC), was speaking to reporters after launching MaGIC's Global Accelerator Programme in Cyberjaya on Tuesday.

He said Malaysia's economy was never "in doom and gloom", and that the economic slowdown was due to the volatility in oil price and global market sentiment.

Asked if Malaysia would revise the GDP projection, Mohd Irwan said, the Government was meeting with the Economic Planning Unit (EPU) and Bank Negara to see whether there was a need to revise it in Budget 2018, scheduled to be tabled on Oct 27.

Yesterday, Prime Minister Datuk Seri Najib Tun Razak said in his blog posting that Malaysia was able to record achievements that it could be proud of despite challenges such asthe global market uncertainty and falling oil prices.

He said that overall, the country's economic performance for the first quarter of 2017 remained stable and strong, expanding by 5.6%, with foreign direct investment rising to RM17 billion.

Source - Bernama
 

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Jul 2017 3

Ringgit higher versus US dollar on Monday

KUALA LUMPUR: The ringgit opened higher on Monday following the bearish sentiment in the market for the US dollar after the release of its first-quarter gross domestic product (GDP) data last week, a dealer said.At 9am, the...

KUALA LUMPUR: The ringgit opened higher on Monday following the bearish sentiment in the market for the US dollar after the release of its first-quarter gross domestic product (GDP) data last week, a dealer said.

At 9am, the ringgit traded at 4.2900/2970 against the greenback from 4.2920/2950 on Friday.

The dealer said at the beginning of this year, the Donald Trump-fuelled US dollar rally left the currency vulnerable to heavy losses and after six months, the greenback still lacked strong and fresh catalysts.

The US released its better-than-expected GDP data last week which showed that the US economy advanced 1.4%. Corporate profits, however, declined despite the upbeat data.

 

Overall, investors remained focus on central banks' intentions to tighten monetary policies.

Against a basket of major currencies, the ringgit traded mixed.

It rose against the Singapore dollar to 3.1155/1210 from 3.1181/1220 on Friday and strengthened against the yen to 3.8194/8267 from 3.8328/8365.

The local note fell against the British pound to 5.5787/5904 from 5.5757/5801 and eased slightly against the euro to 4.8970/9055 from 4.8963/8015 on Friday.

 

Source: Bernama

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Jun 2017 30

Ringgit is Asia's strongest currency

KUALA LUMPUR: Malaysian assets are back in favour as investors focus on encouraging signs of an economic turnaround instead of a scandal that has touched the top of government and as far as Hollywood.The stark shift means...

KUALA LUMPUR: Malaysian assets are back in favour as investors focus on encouraging signs of an economic turnaround instead of a scandal that has touched the top of government and as far as Hollywood.

The stark shift means that Prime Minister Datuk Seri Najib Tun Razak, who has weathered political attacks and protests going back to 2015 over allegations involving state-owned 1Malaysia Development Bhd., may call an early election to cement his hold on power.

The ringgit is easily the strongest major Asian currency this quarter, climbing more than twice as much as the next best, the Chinese yuan. Global funds have bought the most Malaysian stocks year-to-date since the same period in 2013, and net inflows to the bond market surged in April and May.

Malaysia has been rocked by far-reaching investigations into investment fund 1MDB, yet double-digit acceleration in the country’s exports has lifted the economy, which grew 5.6% on-year in the first quarter, the most since early 2015.

 

“With improving macro-economic conditions in Malaysia, we became more positive in mid-2017 for the general Malaysia outlook, although there are still political and corruption concerns,” said Hakan Aksoy, a fund manager at Pioneer Investment Management Ltd., which oversees US$244bil globally. 


“As long as we see improvement on the macro data with the support of global conditions and stable energy prices, we will keep our cautiously positive stance for Malaysia,” London-based Aksoy said.

Overseas investors have purchased US$2.48bil of Malaysian equities this year, the biggest stock inflow in Southeast Asia. The FTSE Bursa Malaysia index hit its highest in two years on June 16 as technology, banks and construction shares soared.

Samsung Asset Management is buying Malaysian banking, property and construction stocks on bets the government will pump prime ahead of the election, according to Hong Kong-based fund manager Alan Richardson. Meanwhile, it’s paring technology and commodity-related holdings.

“Domestic cyclicals will outperform while global cyclicals will underperform,” Richardson said. This is due to “a combination of global monetary stimulus and domestic early election stimulus.”

The stock market’s gains came as the ringgit rebounded from a 19-year low. After missing out on an earlier rally in regional currencies, it strengthened as growth quickened and concerns eased over an earlier move by the central bank to deter currency speculators.

Bond investors have also returned. Malaysian debt securities drew more than RM16bil (US$3.7bil) in April and May after recording the longest stretch of outflows in two years. The yield on 10-year notes has fallen 56 basis points to 3.9% since reaching an eight-year high in November.

Still, not everyone is convinced. Nomura Holdings Inc. is underweight on Malaysian stocks, citing expensive valuations and doubts that the growth momentum can be sustained.

“I find it difficult to justify buying Malaysia’s genuine story while ignoring the risks on valuations and also the existing risk that the Malaysian market comes with,” said Mixo Das, Nomura’s Southeast Asian equity strategist in Singapore. “The market probably goes up a bit more till the election, but what happens after it?”

A general election isn’t due until mid-2018, but there’s growing speculationthat Najib will call for polls this year with growth holding up and the opposition parties racked by infighting. The premier said earlier this month that preparations for the election were going well.

The economic outlook has helped to counter headlines involving 1MDB, which is at the center of money-laundering allegations and probes in several countries. The U.S. Justice Department is seeking to recover US$1.8bil in assets it says were bought with funds misappropriated from 1MDB.

Complaints filed in a U.S. court alleged that from 2009 through 2015 more than US$4.5bil belonging to 1MDB was diverted by officials of the fund and their associates. Najib, who until last year was the chairman of 1MDB’s advisory board, has denied wrongdoing and was cleared by Malaysia’s attorney general.

For Schroder Investment Management Ltd., economic factors trump politics when investing in Malaysian bonds. It also favors the ringgit due to the nation’s positive outlook.

“Key considerations are improving fiscal dynamics, dynamics around central bank policy, attractive economic policies, sensitivity to developed market and China developments,” said Manu George, a Singapore-based fixed-income director at the firm. - Bloomberg

 

Source: The Star

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Jun 2017 29

Ringgit seen stabilising further on weakening US dollar

PETALING JAYA: The ringgit may stabilise further in the coming months as the US dollar weakens, with an added boost coming from a combination of foreign fund inflows and exporters converting three quarters of their earnings...
PETALING JAYA: The ringgit may stabilise further in the coming months as the US dollar weakens, with an added boost coming from a combination of foreign fund inflows and exporters converting three quarters of their earnings back into ringgit.
 
Although the US dollar strengthened against the ringgit yesterday, with the currency retreating from a seven-day gain tracking losses in other regional currencies, the greenback has actually declined by 2.94% since early April to yesterday.
 
On a year-to-date basis, the US dollar has weakened by 4.45%.According to a report by Bloomberg, CIMB Investment Bank Bhd group head of treasury and markets Chu Kok Wei expects the ringgit to trade against the greenback at 4.10 to 4.15 by year-end despite some volatility along the way.
 
He said the ringgit faced the danger of getting cheaper earlier because the currency was undervalued, causing investors to cut losses, but that at current levels looks “a lot more reasonable”.
 
Citigroup forex analysts said a hawkish European Central Bank tends to be less disruptive for emerging-market currencies compared to a hawkish US Federal Reserve, which raised the benchmark federal funds rate by 25 basis points recently to between 1% and 1.25%.
 
The analysts said in a report that improving energy and industrial commodity markets also support sentiment towards emerging-market currencies for now.“However, the equity market uncertainty likely will keep investors wary of adding exposure at this time to Asia’s most equity-sensitive currencies (such as the won, Taiwanese dollar and Indian rupee).
 
“Instead, we continue to prefer exposure to more US-dollar, index-sensitive currencies (such as the yuan, Singapore dollar and baht) at this time,” they added.Asian stock markets were broadly down yesterday except for Indonesia’s Jakarta Composite Index, after the US equities closed lower on Tuesday dragged by large-cap technology stocks.“The heaviest foreign buying was recorded last Thursday as net purchases surged to RM208.9mil, as the fall in the crude oil price prompted investors to embark on bargain hunting in the local bourse.
“This coincided with other regional markets that experienced heavy foreign buying, notably Korea and Taiwan,” the research house said in a report.
 
MIDF said Sime Darby Bhd saw the highest net money inflow of RM13.44mil last week, followed by Malayan Banking Bhd and Cahya Mata Sarawak Bhd at RM10.29mil and RM4.63mil, respectively.Local institutional funds, meanwhile, sold RM249.7mil of local stocks last week after a net purchase of RM135.9mil a week earlier.
 
However, Maybank Investment Bank Bhd forex research head Saktiandi Supaat was more cautious on the ringgit’s outlook, saying that there would be resistance at the 4.30 and support at the 4.25 levels.“Our bias remains to lean against strength,” he said in a report.
 
Source: The Star
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