‘Ringgit likely to strengthen against US dollar this year’

KUALA LUMPUR: The ringgit is in a good position to strengthen this year, supported by the upbeat domestic economy and externally, the narrative of readjustment of the US interest rate propping the ringgit’s valuation, said analysts.

MIDF Research said that considering the country as a net commodity exporter of oil and gas as well as palm oil, the ringgit stands to gain from the supportive global commodity prices and sustained trade surplus.

“Most importantly, the US Federal Reserves (Fed) and other major central banks have shifted their monetary stance from hawkish towards dovish, and thus interest differentials would narrow in 2024,” MIDF said in a research note yesterday.

The research firm further said that the strong US dollar has been the main factor in the depreciation of most currencies since early 2022 due to the aggressive interest rate hikes by the Fed.

“Ringgit stayed on a depreciation path as the Fed kept on delaying its interest rate pause,” it added.

MIDF expected the ringgit to average at 4.38 against the US dollar and reach 4.20 by yearend.

Similarly, AmBank Research said the currency’s upside prospect remains bright, backed by an increase in coordination among authorities to shore up confidence in the ringgit.

“(This includes) a statement by the Financial Market Committee (FMC) saying that the ringgit is currently deemed as ‘undervalued’ and also highlighting that Bank Negara Malaysia (BNM) will enhance engagements with corporates and investors to encourage conversions to the ringgit.

“Besides, Malaysia’s second finance minister also bolstered up confidence in the ringgit by saying the currency would strengthen this year to 4.50 per dollar,” it said.

The Fed’s clear signal of an impending rate cut should bode well for the ringgit, and recent signalling by Fed officials preferring to trim interest rates later this year should help weather recent short-term volatility.

“We maintain our end-year forecast of 4.50 with a possible downside of 4.60 per dollar,” AmBank said.

Meanwhile, Maybank Investment Bank said that in the longer term, economic reforms and restructuring, as well as strategic economic growth policies, are vital for the ringgit outlook.

“Monetary Policy Statement stated that ‘over the medium term, ongoing structural reforms will provide more enduring support to the ringgit’.

“Over the next couple of years, we see the execution/ implementation of fiscal reforms as the ‘low-hanging fruit’ for a sustained ringgitpositive/supportive outcome,” Maybank added.

Overall, it said the government has established objectives for reducing the budget deficit, capping the total debt, and increasing revenue through the expansion and improvement of the tax base.

The government has also revealed additional revenueenhancing measures planned for this year, including bolstering tax compliance and rationalising targeted fuel subsidies.