KUALA LUMPUR — The ringgit has a strong potential to appreciate to 4.42 against the US dollar by year-end.

In a note, Kenanga Research said although the latest United States (US) nonfarm payroll figures surpassed expectations, thus delaying rate cut expectations until November, the research firm observes persistent weaknesses in the US economy.

This includes prolonged job searches for seekers, cost-cutting layoffs by firms, and the looming threat of financial strain due to mounting credit card debt and increased mortgage bills.

“This builds the case for a US Federal Reserve (Fed) rate cut in September. Combined with Malaysia’s solid fundamentals, the ringgit is set to appreciate.

“The government’s efforts to repatriate foreign income and its commitment to fiscal consolidation may also help strengthen the local note,” it said.

Kenanga Research noted that the ringgit rebounded in May, becoming one of the best-performing ASEAN currencies as the US Dollar index (DXY) depreciated.

This depreciation was driven by a lack of hawkish conviction from the Fed, a softer US jobs report, a slowdown in core consumer price index and weak retail sales.

The prospect of policy divergence between the Fed and G10 central banks also exerted pressure on the US dollar.

“Additionally, the ringgit was bolstered by the Bank Negara Malaysia’s (BNM) decision to maintain the policy rate and robust domestic macroeconomic readings,” it said.

It noted that most ASEAN currencies also strengthened against the US dollar. The Singapore dollar and Thai Baht each appreciated by 0.4 per cent, while the Indonesian rupiah saw a modest gain of 0.1 per cent.

Meanwhile, inflation rates are expected to remain stable, averaging around 2.7 per cent in 2024.

“Our inflation forecast has already taken into account the recently announced diesel subsidy rationalisation and the potential floating of RON95 in the fourth quarter of 2024.

“Coupled with our optimistic growth forecast of 4.5-5.0 per cent, the BNM is expected to keep the overnight policy rate unchanged at 3.00 per cent, potentially until the end of 2025,” Kenanga Research said. — BERNAMA