KUALA LUMPUR, April 23 — The ringgit is poised to strengthen this year, driven by significant events which could bolster the local currency.
Maybank Singapore’s foreign exchange research and strategy (global markets) head Saktiandi Supaat said that with the US Federal Reserve (US Fed) likely to be embarking on an easing cycle soon, the rates landscape should be more favourable for the ringgit as Bank Negara Malaysia is expected to stand pat for the whole of 2024.
“Our economist has highlighted that 2024 could be a year of take-off for the Malaysian economy with the blueprints and masterplans including the Madani Economy framework, the National Energy Transition Roadmap, and the New Industrial Master Plan 2030 likely to be implemented, and the fiscal reforms and economic restructuring widely watched.
“Successive steps towards fuel subsidy rationalisation could boost confidence in the ringgit,” Saktiandi said to Bernama.
This year could be better for the ringgit as long as the external environment stays benign for the currency.
External factors
The ringgit is currently hovering at 4.77 versus the US dollar.
He added that the ringgit remains very undervalued and has been so since the oil crash. The greenback has appealed as a safe-haven currency as the United States (US) continues to show strong macro data.
“As a reserve currency and payments currency, risk aversion support for the US dollar will remain significant until the US Fed starts signalling an eventual set of cuts or easing trajectory predicated on an easing US inflation outlook being sustained,” Saktiandi said.
The ringgit may flip if the US Fed cuts rates and yields start falling as rate differentials could be a significant driver for the ringgit versus the greenback.
In addition, some improvement in the Chinese economy and/or fiscal stimulus out of China could add support to the yuan and regional markets.
“As long as the Malaysian economy also sees further improvement in the export and investment outlook, the macro fundamental drivers will remain supportive,” he said.
Ringgit versus regional currencies
Saktiandi said that from March 22 to today, the ringgit only declined by 0.88 per cent versus the US dollar compared to a month ago.
In comparison, the Indonesian rupiah, the Korean won, the Japanese yen, the Taiwanese dollar, the Philippine peso, the Thai baht, and the Singapore dollar have fared worse than the ringgit versus the US dollar
These currencies have depreciated at 2.9 per cent, 2.8 per cent, 2.2 per cent, 2.1 per cent, 2.0 per cent, 1.80 per cent, and 0.9 per cent respectively.
“The yen, rupiah, won, peso and baht, for example, face specific portfolio flows and/or domestic related issues including policy as well as fiscal concerns which may have exacerbated their larger impact on currencies within the market space,” he said.
Thus far, the Malaysian financial markets have been relatively resilient vis a vis other regional markets despite the confluence of risk factors. The government and central bank have managed the situation relatively well.
Foreign exchange performance
Saktiandi expects the volatile foreign exchange market to recover or stabilise once the US policy rate outlook becomes more certain and some dissipation in the geopolitics in the Middle East, which should lead to the US dollar easing significantly by year-end.
However, there is still the risk of escalating US-China tensions ahead of or after the US presidential election, which is slated for November 5.
“Improvement of the macro environment outside of the US could also lead to an improvement in risk sentiment and provide support for riskier emerging market currencies,” he said.
Besides, the most recent coordinated verbal intervention via the issuance of various statements by the Group of Seven trilateral meeting between the finance ministers of South Korea, Japan, and the US, as well as the People’s Bank of China’s comment on the yuan has helped to calm sentiments in foreign exchange markets.
— Bernama
