Ringgit rallies as US holds interest rates

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

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.