In spite of impending yield increase, the recent ‘debasement’ (or correction) of USD continues to puzzle. Common sense seems to suggest that a higher yield should result in a higher USD. Since mid 2017, there is a divergence between USD yield and DXY (US Dollar index). Should rate increase lead to a higher USD?
Regression – DXY vs 10Y US Government Bond Yield
Although the r-squared is low at 13% (lack of statistical significance?), there appears to be a negative relationship between DXY and US10Y in respect of the period of 2010 till 2018. Based on current US10Y yield of 2.6465%, the predicted DXY is approximately $85.018 (potentially mean more room for further decline in USD?)
What does this mean for the Ringgit?
As DXY declines, the Ringgit will appreciate:
Based on current regression analysis, the Ringgit has potential room to appreciate further (predicted: $3.67 vs actual: $3.90)
In addition, MYR is also supported by today’s rate hike:
News Update: Bank Negara Malaysia (BNM) raised the Overnight Policy Rate (OPR) by 25 basis points to 3.25% from 3% at its Monetary Policy Committee (MPC) meeting today. This is the first rate hike since July 10, 2014.
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