TL;DR Breakdown
- The Malaysian ringgit is expected to remain stable against the US dollar, fluctuating between 4.66 to 4.68.
- Chief economist Mohd Afzanizam Abdul Rashid anticipates continued weakness in the ringgit, influenced by the expected restrictive monetary policy of the US Federal Reserve.
- MIDF Research predicts a recovery for the ringgit, projecting it to appreciate 4.24 against the US dollar by the end of 2023.
Description
The Malaysian ringgit is anticipated to remain stable against the US dollar, hovering between 4.66 to 4.68. According to Mohd Afzanizam Abdul Rashid, the chief economist and head of social finance at Bank Muamalat Malaysia Bhd, the ringgit is expected to stay on its current path, indicating a continued weakness. This projection is influenced by … Read more
The Malaysian ringgit is anticipated to remain stable against the US dollar, hovering between 4.66 to 4.68. According to Mohd Afzanizam Abdul Rashid, the chief economist and head of social finance at Bank Muamalat Malaysia Bhd, the ringgit is expected to stay on its current path, indicating a continued weakness. This projection is influenced by the anticipated stance of the US Federal Reserve, which is likely to maintain a restrictive monetary policy.
Additionally, the upswing in crude oil prices implies that inflation may persist above the 2% target for an extended period, warranting the retention of a high benchmark interest rate.
Ringgit lowers against the US dollar
The governing council of the European Central Bank is set to convene next Thursday with a consensus that the policy rate will remain unchanged. Despite this, there’s a recognition that the ringgit is currently oversold, and the stringent monetary stance has already been factored in which implies that new information may be required for further weakening. Consequently, until the Federal Open Market Committee (FOMC) reconvenes on Sept 19-20, it’s anticipated that the ringgit may fluctuate between RM4.66 and RM4.68 against the US dollar next week, as shared by Afzanizam.
Compared on a Friday-to-Friday basis, the ringgit declined against the US dollar, shifting from 4.6445/6485 to 4.6745/6795 over the past week. However, it demonstrated an upward trend against other major currencies. It gained strength against the British pound, moving from 5.8878/8929 to 5.8352/8414 compared to the previous Friday. Similarly, it appreciated against the euro, climbing from 5.0388/0432 to 5.0031/0085, and also saw an increase against the Japanese yen, rising from 3.1939/1968 to 3.1741/1777. Additionally, the ringgit exhibited mixed performance against its ASEAN counterparts.
The local unit saw improvements against the Singapore dollar, advancing from 3.4386/4418 to 3.4277/4312 over the past week. It also made gains against the Thai baht, moving from 13.2677/2852 to 13.1591/1787 compared to the previous Friday. On the other hand, it experienced a slight dip against the Philippine peso, going from 8.21/8.22 last week to 8.25/8.26, and a marginal decrease against the Indonesian rupiah, moving from 304.6/305.1 to 304.9/305.4.
Ringgit is expected to recover by end of 2023
MIDF Research recently predicted that the ringgit is poised for a recovery, projected to appreciate 4.24 against the US dollar by the close of 2023. An anticipated reversal of funds underpins this positive outlook flows towards higher-risk markets.
The research house outlined its perspective in its monthly currency review, emphasizing that the latter part of the year holds promise for the ringgit. This optimism is grounded in expectations of a less hawkish stance from the US Federal Reserve and a resurgence in China’s economic rebound. This resurgence is expected to be bolstered by various stimulus measures, including the country’s central bank’s recent ten basis points reduction in China’s one-year loan prime rate.
The report further details the projection, stating that the ringgit is anticipated to conclude the year at approximately RM4.24. Over 2023, it is expected to average RM4.43, compared to the year-to-date average of RM4.49. Additionally, it noted that the ringgit experienced a modest depreciation of only 0.5% month-on-month, settling at RM4.589 based on the monthly average. This performance was comparatively favorable when contrasted with regional currencies.
According to MIDF, not only did the strength of the US dollar play a role, but the performance of the ringgit and neighboring currencies was also hampered by China’s lackluster economic revival, characterized by persistently sluggish manufacturing and trade sectors. Additionally, renewed apprehensions regarding China’s real estate predicament contributed to the weakening of regional currencies.
MIDF anticipates that disparities in interest rates will not create substantial pressure to divert more funds into the US market. They posit that the Fed will maintain its funds rate within the range of 5.25% to 5.5%. In comparison, Bank Negara Malaysia is expected to uphold the overnight policy rate (OPR) at 3% for the remainder of the year. MIDF predicts a redistribution of fund flows to various parts of the world, including Malaysia.
The report holds an optimistic outlook for the Malaysian currency, as it foresees a diminishing likelihood of the Fed maintaining a hawkish stance later in the year. This positive sentiment is reinforced by robust economic fundamentals within Malaysia, including an ongoing current account surplus.
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