Room for ringgit to appreciate

by NUR HANANI AZMAN / pic by TMR FILE

THE current weakness in the ringgit US dollar exchange rate is forecast to be for the short-term and the local unit to appreciate when the domestic Covid-19 situation and growth outlook improves.

MIDF Research economist Abdul Mui’zz Morhalim said the recent weakness in the ringgit was mainly influenced by the economic growth concerns as new Covid-19 cases remained high in Malaysia with the Delta variant spreading across the world.

“But with the encouraging progress in vaccination, we expect the improving public health will allow the economy to gradually reopen in the later part of the year.

“On that note, we view the ringgit to move towards RM4.05 per dollar by the end of the year,” he told The Malaysian Reserve (TMR).

The local unit depreciated from about RM4.03 at the end of February to RM4.23 on Wednesday and closed at RM4.22 yesterday as the country went into the movement restriction order period. Abdul Mui’zz said there are downside risks to the ringgit forecast should the economy remains weak from external factors.

“The expectation of the US Federal Reserve to taper its asset purchases will also support the US dollar to strengthen against other currencies, including ringgit,” he added.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said the main factor behind the weaker ringgit is due to the number of Covid-19 infections in the country which remain in the five-digit level.

This outweighs the positive vibes from the country’s vaccination drive as vaccination administered daily reached above 400,000 doses on most days.

“Demand prospects for commodities such as Brent crude oil price may be dampened by the Delta variant. Brent crude oil price has a causality towards the ringgit, and any downward movement in the crude oil price will lead to a weakening in the ringgit,” he told TMR.

In the near to medium term, Adam expects the ringgit to hover between the range of RM4.18 to RM4.22 before strengthening to trade between RM4.11 to RM4.15 while more gets vaccinated.