The local unit’s US dollar pair has been in the oversold region for quite a while 

by S BIRRUNTHA  /  Pic by BLOOMBERG

THE ringgit is expected to gain against the US dollar driven by positive market sentiment despite concerns over the Omicron variant. 

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the local unit’s US dollar pair has been in the oversold region for quite a while. 

He added a reversal of the trend is something to be expected. 

“It looks like the immediate support level for the ringgit/US dollar of RM4.1862 would be pierced. Should that happen, the next support level will be at RM4.1498,” he said. 

The ringgit closed yesterday at RM4.178 against the greenback as the Omicron which is said to be less severe although it is highly transmissible, continued to infect even more people across the globe. 

Strong export data bolstered sentiment in the local unit. 

Mohd Afzanizam noted that the reopening of the economy would also continue to help solidify the recovery momentum in the ringgit moving into next year. 

He also pointed out there could be a chance that Bank Negara Malaysia (BNM) might raise the Overnight Policy Rate (OPR) at some point in 2022. 

“We could see this perhaps in the second half of 2022. So, it looks like the ringgit might gain more strength in the immediate terms,” he said. 

BNM maintained the OPR at 1.75% this year after taking into account risks to Malaysia’s economic growth outlook remains tilted to the downside on external and domestic factors amid lingering Covid19 pandemic concerns. 

The central bank also expects the country’s inflation to remain moderate. 

The risks to Malaysia’s economic growth outlook include weaker-than-expected global economic growth, worsening supply-chain disruptions and the reimposition of containment measures due to the impact of Omicron. 

Kenanga Research concurs that the ringgit could continue its positive momentum against the greenback this week as global economic sentiment improves. 

It noted the ringgit is supported by higher crude oil prices, favourable bond yield differentials, higher-than-expected trading volumes and improved domestic Covid-19 conditions. 

Assessing the ringgit’s performance last week, Kenanga Research stated that after trading above the 4.200 level against the US dollar for much of last week, the local unit strengthened to 4.196 last Friday as studies from the UK showed the Omicron infections are less severe than Delta. 

On that note, most risky assets resumed their risk-on rally as investors became more optimistic about the global economic outlook. 

The local note has also benefitted from a 3.6% week-on-week rise in Brent crude oil price. 

According to Mohd Afzanizam, the ringgit moved in a volatile pattern last week mainly affected by the developments around the Omicron.