BANKS REVISE RINGGIT YEAR-END TARGET
Forecasts downgraded to as low as 4.35 against US dollar
TOP international investment banks have revised downward their year-end ringgit targets on trade war concerns and potential further tightening by the United States Federal Reserve.
They said the local currency had touched its lowest point year-to-date against the US dollar.
Foreign investors continued to sell off the ringgit yesterday, leading to Malaysia to register the largest weekly and quarter-to-date outflow among Asia-Pacific markets tracked by Bloomberg.
At 6pm, the ringgit closed at 4.0625 against the US dollar after trading at its lowest level of 4.0660 since December 28 last year.
Out of 18 investment banks that updated their year-end ringgit targets this month, 13 revised them downward.
ING Financial Markets was the most pessimistic, revising its ringgit target to 4.35 against the greenback from 4.05 last month, followed by Morgan Stanley, which reviewed its target to 4.28 from 4.20 previously.
Other investment banks that have downward revisions on ringgit are Standard Chartered, Westpac Banking, Citigroup, Macquarie Bank, Mitsubishi UFJ Financial Group and CIMB Group.
Bank Islam Malaysia chief economist Dr Mohd Afzanizam Abdul Rashid said external factors, especially trade tensions between the United States and China, continued to put the ringgit under pressure.
“It remains to be seen whether the situation would worsen or otherwise but the meeting between (US President Donald) Trump and European Commission (commissioner Jean-Claude Juncker) have resulted in the suspension of additional tariff. As such, the trade friction appears to be China-centric,” he told NST Business.
Afzanizam said the European Central Bank was adamant in ending its asset purchases programme by the end of this year, paving the way for a possible rate hike next year and beyond.
“So, it is a risk-off environment whereby typically safe-haven currencies such as the US dollar would prevail,” he said.
However, he said, there was always a reason for foreign funds to make a comeback, especially when the ringgit became more undervalued and stock valuation was quite attractive, at the this juncture.
Perhaps, more clarity in government policies would hold the key for the turnaround of foreign funds going forward, he added.
Afzanizam said the market could expect clearer policy direction once the Council of Eminent Persons concluded its assessment on the economy in the middle of next month and came up with a subsequent policy recommendation.
“For now, we expect the market to remain cautious,” he added.
MIDF Research chief economist Dr Kamaruddin Mohd Nor said the weakening ringgit was due to the release of the US gross domestic product growth report for the second quarter.
“The dollar index has been gaining against major regional currencies. Solid domestic performance in the US could point to a faster pace of normalisation.
“We expect ringgit to remain under pressure in the near future. Improved crude prices, on the other hand, could lend support to the local currency,” he said.