Ringgit likely to slip further against dollar
> May go below 4.00 level in anticipation of more US interest rate increases
PETALING JAYA: It is highly likely that ringgit, which was trending at RM3.9845 to the US dollar last Thursday, to weaken further against the greenback and trade at below RM4.00 in anticipation of more rate increases in the US this year.
FXTM global head of currency strategy & market research Jameel Ahmad told SunBiz that while the US rate hike last week may not have had much impact on the local unit as it was already priced in, the US Federal Reserve’s (Fed) hawkish tone might weigh on buying sentiment for the ringgit.
He said this is due to expected increase in demand for the greenback in the medium term after the Fed indicated that there are two more rate increases to come this year.
“(Also) due to persistent concerns over emerging market sentiment, we can’t rule out the likelihood of future potential losses for the ringgit. We are only marginally away from the ringgit trading back at RM4 against the dollar and unless there is profit taking on the greenback, the projection is that the ringgit is at risk to further losses,” he added.
Last Wednesday, the Fed raised the interest rate by 0.25% to 1.75% to 2%, the highest since the global financial crisis in 2008.
Jameel said the worst-case scenario for the ringgit at this point would be that there is a period of risk aversion in the financial markets, where investors become less attracted towards emerging market currencies and the persistent buying appetite towards the dollar leads to the likelihood that the ringgit falls back below RM4.00.
Kenanga Research, meanwhile, has revised downwards its year-end ringgit projection to RM4.05 from RM3.90. In the near term, it expects the ringgit to hover between RM4.05 and RM4.10 and weaken against other major currencies.
The research house said Bank Negara Malaysia is expected to adopt an accommodative monetary policy stance by maintaining the Overnight Policy Rate(OPR) at 3.25% for the remainder of this year and next year, in a bid to ensure capital market stabilitity and liquidity as well as to support growth.
“On the home front, the biggest risk to the monetary policy outlook is that a post-election sharp decline in investment would augment an economic slowdown. In fact, Malaysia’s capital market has been experiencing large outflows of funds since the surprise outcome of the general election in early May as well as the current policy changes and measures brought by the new administration led by Pakatan Harapan government; mainly the removal of Goods and Services Tax rate and scrutinising key infrastructure projects,” it said.
Meanwhile, Malaysian Institute of Economic Research senior research fellow Dr Shankaran Nambiar said with the domestic situation continuing to be on uneven ground as Malaysia grapples with the effect and damage from the previous administration, coupled with the impending announcement of the full Cabinet of ministers, the fiscal policy outlook still remains uncertain.
The unresolved uncertainties, he said, have affected sentiment of foreign investors.
“The government has more domestic institutional reforms to carry out. It will have little time at the present moment to consider the feelings of rating agencies or that of foreign investors. Under these circumstances, it may not be surprising if the ringgit slips a couple of notches more before it reaches flatter ground,” Shankaran said, adding that fund outflows are likely to continue with the subsequent rate increases in the US.