2018 — a better year for ringgit

Most analysts are bullish on the ringgit’s performance which is expected to continue its good run in the longer term

By DASHVEENJIT KAUR / Pic TMR

The ringgit has fared quite well in the first quarter and after starting the year on a stronger footing, rally for the local currency is expected to continue for the rest of 2018.

Most analysts are also rather bullish on the ringgit’s performance which is expected to continue its good run in the longer term.

Bloomberg data shows that the local currency’s 4.7% improvement is the fifth-highest year-to-date gainer against the US dollar among a basket of Asian currencies.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew is optimistic that the ringgit will definitely hold better than the worst levels of last year.

He attributed the strong ringgit to Bank Negara Malaysia’s (BNM) decision on a 25-basis-point hike on its Overnight Policy Rate (OPR) in January this year — the first hike in four years.

“The rise in the OPR earlier this year was to correct the bad outcome of lowering interest rates in July 2016,” Pong told The Malaysian Reserve (TMR) recently.

“After July 2016, our currency reached the worst level of 4.50 and that’s how bad the outcome was when BNM lowered the interest rates,” he said.

Pong said the primary determining factor on the ringgit performance is the difference in interest rates between the two paired currencies.

However, the pushback, according to Pong, could be the fact that there will be no further interest-rate hikes for the year by the central bank.

“Despite the US interest-rate hike and gradual monetary tightening going forward, we do not foresee further changes in Malaysia’s OPR this year.

“Since BNM intends to keep interest rates to where they are right now, essentially it is going to lead to weakness in the ringgit,” he added.

Pong believes the ringgit has not kept pace with a lot of other currencies trading partners and that would lead to slight weakening in the local currency.

“I think the ringgit will head to the level of 4.05 in the medium term, maybe in six months to one year,” he noted.

Flashback to two years ago on Dec 30, 2016, the ringgit was traded at 4.4862 against the US dollar and one year later it appreciated by 9.5% to 4.0440.

“However, if they (BNM) do increase the interest rates, it will certainly help the ringgit to strengthen. Unfortunately, that will not be the case,” Pong told TMR.

On the contrary, some analysts are banking on the resilience of the local currency, although certain weaknesses are anticipated.

Rakuten Trade Sdn Bhd head of research Kenny Yee is positive that the ringgit will be “stable” on its current levels towards the 14th General Election and will continue to strengthen to 3.80.

“We are bullish on the ringgit and crude oil prices,” Yee told TMR.

Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid is of the view that the ringgit would appreciate further.

“Based on technical readings, the current support and resistance for ringgit is at RM3.82 and RM3.98 respectively. “In the meantime, the ringgit should range between RM3.85 and RM3.95 in the immediate terms,” he told TMR.

Mohd Afzanizam added that the financial markets have been affected by a confluence of factors such as the trade friction between China and the US, as well as the geopolitical development in the Middle East.

As a result, he said the markets are taken aback and the ringgit against the US dollar has been moving in a tight range between 3.87 and 3.88.

“However, the global Purchasing Managers’ Index indices and consumer confidence in the advanced economies have been supportive, which should translate into sustained external sector for the export-oriented countries such as Malaysia.

“The expected rate normalisation in the US also indicates the view that global economy is still healthy as the US Federal Reserve need to remove the policy accommodation,” he said.

Mohd Afzanizam also suggested that the ringgit may continue to appreciate gradually throughout the year.

AmBank Research is positive on the Asian foreign exchange for 2018 though the key risks include a jump in the US wages and inflation, trade wars and protectionism as well as a reversal in the weak US dollar trend.

In its strategy report issued last week, the research firm said its picks of Asia’s emerging-markets currencies are the ringgit, Chinese yuan and high-yielding currencies like the Indian rupee and Indonesian rupiah.

“The ringgit onshore is due to its attractive valuation as the currency is cheap based on real effective exchange rate and a possibility that BNM may lead its Asian peers in tightening policy, and support from commodities,” it said.

A report by RHB Research Institute Sdn Bhd stated that external drivers will continue to emerge as key influencers on Asian ex-Japan currencies, including the local unit.

“Oil prices could be the wild card in this scenario as the ringgit typically moves in line with oil prices, strengthening as oil prices rise and weakening when prices fall.

“In short, even in the face of the greenback’s strength, the ringgit could maintain its value if oil prices can counteract the move,” RHB Research said.