Ringgit expected to remain soft post FOMC

The ringgit is expected to trade within the range of RM4.21 to RM4.22 against the US dollar this week on mixed market sentiment, an economist says 


THE ringgit is expected to remain soft post the Federal Open Market Committee (FOMC) meeting yesterday, according to Bank Islam Malaysia chief economist Afzanizam Abdul Rashid. 

He said the US Federal Reserve’s (Fed) will stay hawkish in their economic assessment.

“As such, ringgit could stay soft post FOMC. However, I do think the US dollar/ringgit may not breach the immediate resistance level of RM4.245. 

“I think it would take more bad news to breach such a level. The news could be related to Covid-19 in respect of the latest variant of concern severity for those who have been infected and the ability for the latest to evade the vaccine,” he told The Malaysian Reserve yesterday. 

The ringgit is expected to trade within the range of RM4.21 to RM4.22 against the US dollar this week on mixed market sentiment, said an economist. 

Commenting further, Afzanizam noted that the ringgit should stay weak during the day before the FOMC, as the US dollar is gaining further traction as the final FOMC meeting for the year looms near. 

“The US dollar is staging gains across major currencies such as the euro, pounds, yen and Australian dollar. 

“This was reflected in the sharp rise in the US dollar index which lingers at more than 96 points,” he added. 

Afzanizam also said the UK reported its first Omicron related death, implying downside risks to growth remain clearly visible. 

He said this has further added to the risk-off sentiments, leading to higher demand for the US dollar. 

“The Bank of Canada has also announced their monetary policy review whereby they have kept their mid-point inflation target of 2% while remaining committed to maintain the benchmark interest rates at a low level in order to support the economic recovery. 

“All in all, the Fed really stands out in respect to the monetary tightening campaign. Hence, the US dollar will be highly in demand and by extension, ringgit could be negatively affected,” he noted. 

Fitch Solutions Country Risk and Industry Research has highlighted in a recent note that the short-term outlook for the ringgit remains weak due to bearish technical signals and uncertainty caused by the emergence of the Omicron variant. 

As such, it retained its forecast of the average exchange rate of the ringgit at RM4.20 to the US dollar in 2022 and 2023. 

It noted that the long-term outlook for the ringgit had worsened slightly given the hawkish tilts in major central banks around the world, although a significant downside will be contained by the ringgit’s undervaluation in real effective exchange rate terms and stronger economic activity in 2022. 

According to Fitch Solutions, since its last update in September 2021, the ringgit has weakened further in line with its view, slipping by 1.1% against the dollar to trade at RM4.22 to the greenback as of Dec 2 — from RM4.18 against the greenback on Sept 24. 

This brings the year-to-date average to RM4.14 to the US dollar, which is just shy of its 2021 average forecast of RM4.15 to the greenback. 

Fitch Solutions also expects the ringgit to continue losing ground to the US dollar in the first half of 2022 (1H22) and the US dollar strength to wane in 2H22. 

Therefore, it said this should see the ringgit average around RM4.20 against the US dollar in 2022, a forecast which the research house maintains.