‘Macro fundamentals, lower risk aversion to support ringgit’
KUALA LUMPUR: The ringgit is expected to remain strong this year, mainly supported by macro fundamentals and lower risk aversion, said AmInvestment Bank Bhd (AmInvest).
The ringgit, vis-a-vis the US dollar, had appreciated 8.6 per cent last year after easing 4.5 per cent in 2016.
AmInvest noted that the ringgit had ended last year at 4.046 against the US dollar, with the full-year average at 4.30, hitting close to its pear-end projection of 4.05 and full-year average forecast at 4.31.
It said for this financial year, its “base case” for the ringgit would end at 3.90, with the full-year average at 3.93 to 3.95.
The firm’s “optimistic” end-period fair value is 3.76, with the full-year average at 3.80 to 3.82, supported by strong fundamentals.
“We examined the impact of the US dollar-ringgit on Malaysian Government Securities (MGS) papers, i.e. three-, five- and 10-year yields, and found a significant impact of 0.04 per cent, 0.02 per cent and 0.05 per cent in the short run and 0.29 per cent, 0.48 per cent and 0.22 per cent in the long run for the three-, five- and 10-year MGS yields, respectively,” it said.
The ringgit closed at a fresh 20-month high of RM3.936 last Friday.
Over the past year, the local unit rallied by 11 per cent against the US dollar, thanks to stronger domestic economy, a weaker dollar narrative and rising energy prices.
Meanwhile, HSBC Asian economic research co-head Frederic Neumann reportedly said the ringgit was still very competitive.
HSBC expects the ringgit to “catch up” and reach 3.80 to 3.90 this year.
AmInvest said while a stronger US dollar-ringgit was likely to pose challenges to the competitive edge of export-oriented industries in the global market, its impact was muted if domestic manufacturers imported raw and processed materials used to produce intermediate goods and exported for further processing, or final consumption.
“Close co-movements between exports and imports allow for natural hedge and reduce the impact of the ringgit movements.”
The firm also said the construction sector should benefit from a stronger ringgit, given that its activities were broadly domestic-oriented, with its output priced and consumed locally although some of the inputs were imported.
“Our findings unveil that for every one per cent change in the US dollar-ringgit, it will influence the sector by 0.65 per cent after one-quarter lag. As for the services sector, businesses in this industry with high import contents and limited reliance on exports will benefit from US dollarringgit appreciation,” it added.