Ringgit to recover against US dollar by year-end

by S BIRRUNTHA / pic by TMR FILE

THE ringgit is projected to strengthen to the RM4.25 level against the US dollar by the end of the year amid Malaysia’s strong economic fundamentals, according to AmBank Group chief economist and Economic Action Council secretary Dr Anthony Dass.

He noted that economic data is indicating that the country’s business sentiment and manufacturing sector remained positive with growing optimism in business prospects, going into the second half of this year (2H22).

Dass added that the economic data is also pointing that household confidence is improving with the increase in household loans as well as increasing credit cards and charge card spending.

“The market is also seeing positive foreign appetite into our equities market with foreign direct investments picking up.

“This could support our ringgit going forward,” he said during AmBank Group’s webinar on 2H22 market outlook on Friday.

Dass said other positive factors that would support the ringgit include Brent crude oil, which is trading at an average price of US$104 (RM456.50) per barrel this year, and the crude palm oil price, which conservatively average around RM5,500 per tonne.

Going forward, he highlighted that the ringgit will continue to be affected by the movement of the US dollar and the reaction of the yuan against the greenback.

He also said the strengthening of the dollar following the monetary easing by the US Federal Reserve as well as the weakening of the yuan had weighed on the ringgit as China is Malaysia’s major trading partner.

Meanwhile, Dass also shared that Bank Negara Malaysia (BNM) has enough buffer to support the ringgit and had used only about US$8.6 billion to stabilise the ringgit.

He noted that BNM still has enough ammunition to stabilise the ringgit, as it used close to US$24 billion during the peak of 2018 to 2019.

When asked whether the 15th General Election would affect the ringgit, Dass opined that the local currency could experience some fluctuations, if there were no clarity in terms of the timing of the election.

However, he said the volatility is only expected for a short-term period.

“So, for the second half, I am still expecting the ringgit to strengthen on its own because economic fundamentals will continue to grow.  

“Malaysian businesses today are increasingly disconnecting themselves with politics.  

“The positive economic data showed that there is a bit of this disassociation between politics and the opportunity to do business,” he added.

On Overnight Policy Rate (OPR), Dass said Ambank expects another two OPR hikes this year, one in July and another in September.

He noted that the OPR hike would provide some buffer to ringgit depreciation and at the same time, a buffer for BNM to stabilise foreign reserves.

However, he said this can affect the cost of funds for those who took loans at a floating rate.  

On another note, Dass emphasised that Malaysian businesses should keep green targets in mind, as 70% of local exports go to countries that have committed to zero carbon emissions by 2040-2050.

Therefore, he stressed that Malaysian businesses must be aware of meeting their green goals or risk losing export strength.

He said currently sectors that are “very high” on the environmental, social, and governance (ESG) risk level includes the oil and gas, metals and mining as well as coal power generation, which altogether accounts for 10% of the country’s GDP.

He said next on the “high” ESG risk level are the chemicals, refining and marketing, and agribusiness sectors, which contribute 17% to Malaysia’s GDP.

He noted that the sectors on “medium” risk level are technology hardware, automobiles, environmental services, forestry, transportation, building materials, aerospace and defence, containers and packaging, home builders and developers and midstream.