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The ringgit appreciated past the 3.50 mark for the first time since November 1997, touching 3.4995 at 2.45pm in Kuala Lumpur yesterday before settling at 3.5027 at 4.18pm.

While there were views that the currency’s appreciation was due to strong foreign inflows to the equity market due to the market’s good performance, economists maintained that Malaysia’s strong economic fundamentals and the ringgit’s laggard nature were the main strengthening catalysts.

JP Morgan Chase head of Asia foreign exchange strategy Claudio Piron told StarBiz the ringgit could still afford to appreciate a further “10%” as it was still catching up with other currencies.

“The regional strengthening of currencies against the greenback is related to the recovery story of Asia. Low oil price is also helping,” Piron said.

Malaysia’s involvement in free trade agreements and its recent foreign direct investment policies were also encouraging for the ringgit, he said, adding that investors were also looking for alternative destinations in Asia to China and India.

“Asian central banks invested significantly into treasuries of the G7 nations, but now we are seeing a slight reverse in that trend. That said, Malaysian exporters still have nothing to fear unless the ringgit rises another 10% and the yen remains weak,” he said.

The renminbi also had scope to appreciate, Piron said, adding that it would be good for the Chinese economy to depend less on exports and improve domestic demand. He has an end-2007 forecast of 7.00 for the renminbi against the dollar and 3.30 for the ringgit.

According to OSK Securities economist Sia Ket Ee, a combination of regional and domestic factors pushed the ringgit higher, but attributed the main reason to strong fundamentals in the Malaysian economy. “Our strong trade surplus, totalling around RM9bil a month, is an attractive feature. Besides, with the renminbi also on a strengthening trend, we believe it paves the way for other currencies to appreciate,” Sia said.

He said the number of merger and acquisition (M&A) activities in the local corporate scene was encouraging the inflow of more foreign funds, and the strong showing of the stock market was also a contributor, though not the main catalyst. “As long as we are appreciating in tandem with other regional currencies, Malaysian exporters should not need to feel threatened by a strong ringgit.”

Citigroup Asia Pacific economic and market analysis vice-president Sim Moh Siong told Bloomberg that there had been “a lot” of optimism that Malaysia would benefit from a combination of stock market and M&A flows.