Ringgit weakness to persist in near term

by ANIS HAZIM / pic by MUHD AMIN NAHARUL

THE ringgit closed at a two-year low against the US dollar on broad strengthening of the greenback as investors sought safe-haven currencies amid rising risk factors. 

The ringgit dollar pair closed lower to RM4.402 at close yesterday after hitting a low of RM4.406 in intraday trade.

MIDF Research economist Abdul Mui’zz Morhalim said the strength of the US dollar was driven by investors’ expectations that the US Federal Reserve (Fed) will continue its aggressive monetary policy tightening due to high inflation.

“Relatively, if we compare the ringgit’s performance against major currencies based on a year-to-date basis, the ringgit has appreciated against the Japanese yen, euro and British pound. 

“Unfortunately, the recent weakening of the ringgit was influenced mainly by the shift in market expectations and movement in the financial markets,” Abdul Mui’zz stated in an email.

Citing the market consensus, he projected the ringgit will strengthen towards RM4.25 to RM4.28 by the end of this year.

“We expect the ringgit weakness to remain, for now, hovering around the current level of RM4.40 as the current focus in the market is still on the expected policy changes that will be carried out by the Fed,” he said.

The economist sees several factors that will support the ringgit to strengthen in the coming period including the sustained current account surplus, rising oil prices and improved economic prospects.

Kenanga Investment Bank Bhd economist Afiq Asyraf Syazwan Abd Rahim said the ringgit weakness was due to concerns over the impact of the Fed’s quantitative tightening and China’s policy-induced slowdown. 

“The ongoing global stock market rout due to growing recession fears has also boosted demand for the US dollar, further weakening the local note,” Afiq Asyraf Syazwan told The Malaysian Reserve (TMR).

He believes talk of the forthcoming general election will fuel volatility in the local financial market and may potentially push the US dollar and ringgit pair closer to the 4.41 level. 

However, Afiq Asyraf Syazwan said the weakness is expected to be short-lived. 

“We do not think the ringgit could depreciate past its weakest level on record of RM4.77 to the US dollar due to optimism over a strong post-pandemic domestic economic recovery,” he said.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said world markets are going to be volatile as the Fed is expected to be hawkish in its monetary policy stance. 

“This will inadvertently contribute to the stronger dollar. Ringgit on the other hand is extremely undervalued based on the Real Effective Exchange Rate,” he replied to TMR.

The local unit should be able to stabilise at some point in the future on the back of a current account surplus and a reasonable level of foreign exchange reserve. As of now, external events will dominate the market sentiments, he stated.