Ring­git ral­lies as US holds in­ter­est rates

> Re­search houses say a hike by Fed­eral Re­serve will prob­a­bly come in De­cem­ber

The Sun (Malaysia) - - SPEAK UP - BY LEE WENG KHUEN

PE­TAL­ING JAYA: The ring­git re­bounded as much as 1.07% to 4.0975 against the US dol­lar yes­ter­day fol­low­ing the US Fed­eral Re­serve’s de­ci­sion to keep in­ter­est rates un­changed.

As at 5pm yes­ter­day, the ring­git ap­pre­ci­ated 0.79% to 4.1090 to the green­back, data from Bloomberg showed.

Not­with­stand­ing the firmer prob­a­bil­ity of an in­crease in De­cem­ber, Hong Leong In­vest­ment Bank (HLIB) Re­search said a less hawk­ish stance in 2017 is ex­pected to cause some short­term weak­ness in the US dol­lar.

How­ever, it noted that the con­tin­ued easy mon­e­tary poli­cies of other ma­jor cen­tral banks amid still high down­side risks (Brexit, eco­nomic re­bal­anc­ing in China, com­mod­ity prices) would still make the US dol­lar at­trac­tive from the growth/rate dif­fer­en­tial an­gle.

“In this re­gard, emerg­ing mar­ket cur­ren­cies, in­clud­ing the ring­git, may still ex­pe­ri­ence a weak­en­ing bias against the US dol­lar to­wards the yearend,” it opined.

None­the­less, HLIB Re­search said apart from ex­ter­nal fac­tors, the up­com­ing Bud­get 2017 and a less dovish Bank Ne­gara Malaysia are fac­tors sup­port­ing the ring­git.

“All-in-all, we main­tain our ring­git fore­cast range at RM4.00 to RM4.20 against the US dol­lar for the re­main­der of 2016,” it added.

As the Fed­eral Open Mar­ket Com­mit­tee sounded rel­a­tively up­beat on the progress of the US econ­omy as well as grow­ing dis­sent on the Fed’s con­sen­sus view, HLIB Re­search is main­tain­ing its fore­cast of 25-ba­sis­point hike in in­ter­est rates in De­cem­ber 2016.

MIDF Re­search said it is stay­ing pat on its fore­cast that the Fed would not in­crease in­ter­est rates by end of this year but be­lieves there is a “live chance” for ac­tion in De­cem­ber.

“In the past 23 meet­ings, there was only one rate hike of 25 ba­sis points. Hence, un­der such pres­sure, the Fed might felt urged to make an­other rate hike this year, pos­si­bly in De­cem­ber, to up­hold its cred­i­bil­ity in the mar­ket,” it noted.

How­ever, MIDF Re­search be­lieves the cur­rent in­di­ca­tors are point­ing to­wards a more slug­gish econ­omy in the fu­ture thus it is stay­ing firm with its fore­cast on the Fed tra­jec­tory at the mo­ment.

AmRe­search is now plac­ing a 75% chance on an in­crease in US in­ter­est rates as op­posed to a Novem­ber hike, for which the prob­a­bil­ity is a low 45% at the mo­ment.

“The Fed is likely to re­main cau­tious given the un­cer­tain and volatile global eco­nomic en­vi­ron­ment, and it would pre­fer to wait for the out­come of the US pres­i­den­tial elec­tion which will be held on Nov 8, and the re­cent mix eco­nomic data sug­gests the Q3 gross do­mes­tic prod­uct (GDP) growth would be limited fol­low­ing a +1.1% quar­ter-on­quar­ter GDP growth in Q2,” it said.

Mean­while, the lo­cal stock mar­ket rose 10.93 points or 0.66% to 1,669.66 points yes­ter­day, sup­ported by gains in telco stocks.

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