Ringgit wraps up 2017 at 4.05 against US dollar
KUALA LUMPUR: The ringgit yesterday closed 2017 at 4.05 against the US dollar — the strongest level this year and beating analysts’ expectations.
Even with the increase, economists believe the local currency is still undervalued and may gain more ground to breach the 4.00 mark versus the US dollar next year.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the outlook for the ringgit was now better with the United States Federal Reserve likely to raise interest rates gradually next year and Organisation of the Petroleum Exporting Countries continuing to cut oil production.
He said looking back at the start of this year, it was almost unthinkable that the ringgit could have strengthened to the level it was now.
“Back then, market participants were very pessimistic because there were a lot of uncertainties about protectionist policies in the US and Europe’s growing populism, which had been exacerbated by United Kingdom’s Brexit vote.
“Lower crude oil prices, which could have been bad for oil-exporting countries, were also affecting sentiments regarding the government’s revenue,” he told NST Business.
Conditions had changed, said Afzanizam, and external factors were likely to be supportive for the Malaysian economy next year.
“It could also lead to further appreciation of the ringgit, especially when the currency is still
deemed undervalued,” he added.
Afzanizam said the ringgit’s average level against the US dollar since July 2005 until now had been around RM3.51.
“There is always a possibility that the mean reversion would continue, provided that positive macroeconomic factors hold for the rest of next year.
“We are also not ruling out that during the intermittent periods, the ringgit could actually breach below the 4.00 mark as suggested by the technical indicators,” he added.
Meanwhile, MIDF Research chief economist Dr Kamaruddin Mohd Nor also expects the ringgit to strengthen further versus the US dollar next year.
He said factors affecting the improvement would include macroeconomic positive outlook, higher crude prices, external trade growth, positive net fund flows as well as a weakening US dollar.