RHB: Ringgit likely to slide on US yield upside

Jha projects the US Treasury 10-year yield to range at 2% to 2.22% by end-1Q22, from 1.67% at present

By NUR HAZIQAH A MALEK / Pic By MUHD AMIN NAHARUL

THE ringgit’s weakness is expected to last another two months before it recovers in the second half of the year as the greenback continues to see a steady rebound due to rising US Treasury yields.

RHB Banking Group chief economist Dr Sailesh Kumar Jha anticipates the ringgit to depreciate further against the US dollar to as low as 4.22 by the end of the quarter, before rising to 4.30 by the end of the first quarter of 2022 (1Q22).

“It’s not a massive pick-up, but significant enough if you’d expect the US dollar/ringgit to go down below 4.00,” he said at the RHB 2Q21 Global Economics and Market Strategy media briefing held virtually yesterday.

Jha said there is still upside to the US 10-year Treasury yields before the effects of rising inflation in the world’s biggest economy kick in, which will benefit the ringgit and Malaysian bond yields in turn. “The US inflation figure is at 1.68% currently, which is some- where in the middle.

“Once we get these upside surprises which we think will happen in inflation in the US and most parts of the world in March, April and May, the 10-year yields will rise,” he said.

RHB projects the US Treasury 10-year yield to range at 2% to 2.22% by end-1Q22 from 1.67% at present, while the 10-year yield for Malaysia Government Securities is expected to range at 3.4% to 3.45% in 2Q21.

The US dollar has been rising alongside Treasury yields after US President Joe Biden signed a US$1.9 trillion (RM7.86 trillion) stimulus bill into law on March 11. Biden’s administration has also been pushing to establish another US$2.25 trillion infrastructure spending bill.

“This is a recipe for long-term interest rates to go up simply because all these fiscal stimuli will putusonapathofUSgrowthtoa sustained uptrend for several quarters if not several years going forward,” he said.

Jha said long-term interest rates in Malaysia are essentially predicated on what happens in the US.

“The major driver of growth in Asia from our analysis is the US, not China. Over the last decade, the impact of China on Asia ex-Japan has been much lower than that of the US,” he said.

“Keep in mind the US bond market is a global bond market. Not only do US investors invest significantly, but also global bond investors. Thus, it is the anchor for long- term interest rates globally,” he added.