Lower exports, slower manufacturing activities and lower interest rates may gravitate the ringgit back to the 4.20-level in 2H20, says analyst

by FARA AISYAH/ pic by BERNAMA

THE ringgit, like other Asian currencies remain out of favour given the weak local economic outlook, with the US dollar remaining in much demand.

“Without an impressive rebound in China’s data and/or global growth, there is no positive risk knock-on effect from US markets. Eventually, buying into a post-coronavirus manufacturing rebound will make sense. Still, it’s a bit early to start front running that trade versus the strong US dollar, so the ringgit continues to trade defensively,” AxiTrader Ltd chief market strategist Stephen Innes said last week.

Economists project the ringgit to return to the 4.20 levels against the greenback by the end of this year on expectation for further reduction in the Overnight Policy Rate (OPR).

The last time it hit the 4.20 mark was on Sept 4, 2019, when the local note closed at 4.2037.

The Malaysian currency closed at RM4.137 last week against RM4.1415 the week earlier.

“I think it might gravitate back to the 4.20-level in the second half of 2020 (2H20) due to lower exports, slower manufacturing activities, lower interest rates and lack of confidence in the current government, among others,” Kenanga Investment Bank Bhd head of economic research Wan Suhaimie Wan Mohd Saidie told The Malaysian Reserve.

Commenting on Malaysia being on FTSE Russell’s watchlist, he said: “FTSE Russell wants the authorities to show more effort in moving towards internationalisation of the ringgit, which is needed in order to achieve certain minimum criteria for Malaysia’s financial assets to be more competitive with less or better, and still no element of intervention.”

Last Wednesday, Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said there is “ample room” for further cuts in OPR if required as the eco-nomy grew 3.6% in the fourth quarter of 2019 (4Q19), the lowest since the global financial crisis a decade ago.

The lower figure also dragged the overall GDP growth for 2019 to 4.3%, compared to 4.7% in 2018.

In the quarter, oil palm production contracted as natural gas production declined, while crude oil production remained in a slump.

Private consumption rose 8.1%, while private investment climbed 4.2%. The manufacturing and services sectors grew 3% and 6.1% respectively.

Gross exports contracted by 3.3% in 4Q19, while gross imports declined 4%.

Last month, the central bank cut OPR to 2.75% from 3% previously in a preemptive move to sustain growth amid price stability.

Nor Shamsiah said BNM has already met with the government to discuss the proposed economic stimulus package to combat the impact of Covid-19.

MIDF Amanah Investment Bank Bhd (MIDF Research) senior analyst Imran Yassin Yusof said there are several downside risks that ringgit could face this year.

“While we do not expect another OPR cut this year for now, the mere prospect of another cut will definitely add some pressure to the ringgit.

“The latest threat of the Covid-19 epidemic could have an influence if it prolongs and results in global supply chain disruption,” he said.

Imran Yassin added that the US presidential election scheduled in November 2020 would also boost the greenback, assuming Donald Trump wins.

As such, MIDF Research expects ringgit to hit 4.20 against the US dollar by year-end, with an average of 4.18.