# How low will Ringgit drop?

In the past two years, we have seen significant correlation between ICE Brent Crude oil price and MYR, providing a high degree of predictability for MYR based on movement in ICE Brent Crude oil price

Statistical Inspection

The available daily prices of MYR/USD and ICE Brent Crude oil are extracted from 1 Jan 2014 till 2 Feb 2016 and a simple regression analysis is performed:

The statistical outcome is as follows:

A linear trend model is computed for Myr/Usd given ICE Brent Crude. The model may be significant at p <= 0.05.

 Model formula: ( ICE Brent Crude + intercept ) Number of modeled observations: 534 Number of filtered observations: 0 Model degrees of freedom: 2 Residual degrees of freedom (DF): 532 SSE (sum squared error): 0.0855409 MSE (mean squared error): 0.0001608 R-Squared: 0.81583 Standard error: 0.0126803 p-value (significance): < 0.0001

Individual trend lines:

 Panes Line Coefficients Row Column p-value DF Term Value StdErr t-value p-value Myr/Usd ICE Brent Crude < 0.0001 532 ICE Brent Crude 0.0009849 2.029e-05 48.5452 < 0.0001 intercept 0.206827 0.0015934 129.802 < 0.0001

Given the statistical significance of the regression analysis (R-squared of 0.81583 and p-value of <0.0001), we could derive a simple formula to predict the movement of Ringgit based on the movement of ICE Brent Crude Oil:

MYR/USD = 0.0009849 x ICE Brent Crude Oil Price (USD/bbl) + 0.206827

What is the forecast range of Brent Crude Oil?

Scenario 1: USD40-60

Vitol CEO says crude to stay between \$40 and \$60 for 10 years

Scenario 2: USD25-40

Forecast Actual Q1/16 Q2/16 Q3/16 Q4/16 2020 Unit
Commodity 30.34 29.8 28.2 26.6 25.1 37.6 USD/BBL

Scenario 3: USD1o or USD20

http://www.moneycontrol.com/news/commodity/when-will-crude-oil-hitbottom_5064741.html

What is the forecast of Ringgit?

Based on the forecast range of Brent Crude Oil of between USD10/bbl and USD60/bbl, we may see the Ringgit possibly trading between RM3.76 and RM4.62:

Key Implications

This is a simple desktop analysis. Foreign exchange movements are subject to numerous macro factors. Nevertheless, given the significance of the statistical relationship, this allows us to forecast a broad predictable range for the Ringgit.

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