Chart 1: USD Index's daily chart as at Mar 16, 2016 (Source: Stockchart.com)
As a result, USD-MYR broke below 4.10 overnight. Again we are facing the prospect of a continuing decline in USD-MYR or plain English, strengthening of MYR.
Chart 2: USD-MYR's daily chart as at Mar 17, 2016_8.45am (Source: Investing.com)
I have appended below the charts of USD Index next to USD-MYR. We can see the following:
- USD-MYR tracked USD Index closely up to May 2015
- From May 2015 to September 2015, MYR weakened while USD was moving sideways; resulted in a rising USD-MYR
- In October-November 2015, USD-MYR failed to make a new high despite sharp rise in USD Index
- From then on, USD-MYR again tracks USD Index fairly closely
Chart 3: USD Index & USD-MYR's daily chart as at Mar 17, 2016 (Source: Stockchart.com & Investing.com)
In conclusion, I believe that we should underweight stocks that had benefited from a weaker MYR (or stronger USD-MYR) such as exporters. Instead we should overweight stocks that would benefit from a stronger MYR (or a weaker USD-MYR).