Ringgit may stabilise this week on Fed’s blackout period

by ASILA JALIL / pic by MUHD AMIN NAHARUL

THE ringgit US dollar exchange rate, which is trading at near two-year lows, will stabilise this week following the blackout period for the US Federal Reserve’s (Fed) officials ahead of their meeting next week.

The ringgit fell to a low of RM4.359 yesterday against the greenback, sustaining its decline since last week and its close of RM4.21 at the start of April.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the ringgit’s steep depreciation last week comes due to market pricing in a more proactive stance from the Fed’s Federal Open Market Committee (FOMC) in the months ahead due to the inflationary pressures.

“The volatility in the ringgit is partly due to expectations the Fed is planning for a more aggressive interest rate hike campaign in early May. In the equities market space, we also saw some foreign-selling activities last week as a result of the weaker local unit,” he said.

There will be a blackout period for the Fed officials this week, which would imply the ringgit could stabilise as FOMC officials would refrain from making any comments on monetary policy, he added.

“Perhaps, some form of correction could also happen next week,” Mohd Afzanizam told The Malaysian Reserve.

Technical indicators suggest the local note is in an oversold position, signalling a possible correction is likely despite the risk-off action of global markets.

On the Dollar Index, the greenback has zoomed past the 101 level to trade around 101.22, a level not seen since March 2020.

An AmBank (M) Bhd FX daily report yesterday noted that with the inflation rate of 2.2% for March, Bank Negara Malaysia (BNM) will not be aggressive in tightening the monetary policy.

AmBank expects the central bank will increase the Overnight Policy Rate by 25 basis points in July.

“If BNM is willing to increase further based on incoming data, we think there is a 40% chance of a rate hike in September,” the AmBank report stated.

The Ministry of Finance (MoF) said the ringgit has remained competitive, with inflation in check, despite headwinds from global geopolitical tensions and uncertainties.

According to the MoF, Malaysia’s strong external position, which includes a healthy current account surplus and a net external creditor position, has enabled the country to withstand such volatility and external shocks.

“Malaysia’s fundamentals remain robust as indicated by consistent export growth and competitiveness, ample foreign reserves, as well as low inflation trajectory in comparison to peers within the region. All these are expected to cushion further ringgit declines,” the MoF said in a statement on Saturday.