Malaysian ringgit weakens as inflation rate falls to five-year low

Malaysia's currency weakened further as the country's inflation rate fell to a five-year low in January, decreasing the upside pressure on the country's main lending rate.

A decline in cost of transport, communication and clothing and footwear led to the January drop in the price rise rate, details showed.

The country had never seen the year-on-year CPI rate below 2.5% since mid-2013 until the big surprise in January when the price rise rate dropped to 1%, its lowest since 2009 December. The rate was at 2.7% in December and was projected by analysts to fall to 1.9%.

The Bank Negara Malaysia had hiked the overnight policy rate by 25 basis points in July last year taking it to 3.25%, and

USD/MYR rose to 3.60 from the previous close of 3.58. The pair which had hit a near six-year high of 3.64 on 29 January has made two attempts recently to break below the 50-day moving average but failed.

The 6 February attempt reached as low as 3.54, which was a one-month low, and the 16 February effort failed at 3.56. The next upside target is 3.63 and then the late January high before new multi-year records.

On the downside, the 50-day simple moving average (SMA) now stands at 3.55 and break of that will open doors to 3.54 first and then 3.51 and 3.46.

The big support is 3.35, a break of which will reverse the steady uptrend since August last year.

The market is now focused on Greece where a EU-leaning turnout will weaken the safe haven demand of the yen and dollar and strengthen risk sentiment, in turn helping emerging market economies like Malaysia.