by ASILA JALIL / pic by MUHD AMIN NAHARUL

THE ringgit performance could be affected without strong external demand and high global oil prices.

MARC Ratings Bhd chief economist Firdaos Rosli said the US dollar has been strengthening since end-May 2021 on the back of strong pandemic rebound.

“But on the other hand, ringgit has been on a weakening trend since early January 2021 amid emergency or prolonged lockdowns in most months of 2021.

“Without strong external demand, high global oil prices and healthy foreign inflows in the capital market, the ringgit could have fared worse.

“Therefore, we would pay closer attention to the three variables to ascertain where the ringgit is heading in the immediate term,” he told The Malaysian Reserve (TMR) yesterday.

Geopolitical factors such as the war between Russia and Ukraineas well as the rise in interest rates by the Federal Reserve (Fed) are expected to have an impact on the ringgit.

Last week, the Fed raised the benchmark interest rate by 25 basis points (bps), its first increase since 2018.

This acts as an effort to curb inflation and it also signalled that there will be seven more rate hikes this year.

The increase in the rate comes as the Fed faces several challenges including ongoing supply chain issues, rising energy prices and the Russia-Ukraine conflict.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the market may have priced in the interest rate hike by the Fed.

He said the market is aware that the Fed is likely to increase their policy rate by six times, with each increase to be a 25bps adjustment in the Federal Fund Rate.

“That could be the reason that the ringgit is quite fairly stable where it is now. The main wildcard is the military conflict and how it will have an impact on inflation.

“It seems that it could potentially slow the recovery process. So because of that, foreign exchange investors would be inclined to demand for the safe haven currency such as the US dollar,” he told TMR.

He noted that it is still uncertain how long the ringgit would be affected by the events but with regards to the way, peace talks could improve the performance of currencies in emerging markets.

“If there is a sustainable ceasefire and peace talks, that could boost up emerging market currencies. Otherwise, the safe haven will dominate the demand,” he added.