Ringgit to rally further, say analysts
Key interest rate hike may boost local currency, say analysts
FOREIGN exchange (forex) analysts expect further rally of the ringgit against the US dollar, fuelled by a possible hike in key interest rate this week.
On Friday, the ringgit rebounded higher against the greenback in early trade. The local unit stood at 3.9410/9450 against the greenback from Thursday’s close of 3.9540/9570, and settled at RM3.955 at the end of trading.
The ringgit rose by half per cent versus the US dollar on Friday, reaching a level not seen in nearly two years. It briefly touched 3.935 to the US dollar and broke through key resistance levels, according to Reuters.
FXTM research analyst Lukman Otunuga said it was a positive trading week for the ringgit, amid the improving sentiment towards the economy.
“A weakening dollar also played a leading role in the currency’s appreciation, with rising oil prices fuelling the upside. With market expectations mounting over the central bank raising interest rates, this could support the ringgit further.
“An Overnight Policy Rate hike by Bank Negara Malaysia has the ability to provide the ringgit a boost against the dollar and other regional currencies.
“If economic data continues to follow a positive trajectory, it should boost sentiment, consequently stimulating investor appetite for the ringgit. External factors, such as stronger crude oil prices, could compliment the upside momentum,” he told Business Times.
The Monetary Policy Committee will hold its first meeting this year on Thursday.
On where the ringgit might settle in the first half of the year, Otunuga said its performance largely depended on the US dollar. “If the dollar continues to weaken, emerging market currencies, including the ringgit, will likely benefit. On the other hand, a strengthening US dollar could create headwinds for the bull rally.
“Investors will also continue to
look at crude oil prices and whether rising production from United States shale exposes the commodity to downside losses. The dollar-ringgit is under pressure on the daily charts, with 3.90 and 3.85 acting as short- to medium-term targets,” he added.
MIDF Research chief economist Kamaruddin Mohd Nor said the ringgit was expected to gradually strengthen this year, with favourable macroeconomic outlook, rising commodity prices and a weakening US dollar being some of the factors.
“Other factors include Bank Negara Malaysia’s efforts to correct market perception of the ringgit. The hawkish Bank Negara statement in November also inferred a possible rate hike. This helps support the ringgit.
“Positive growth in external trade as well as return of foreign investors further support the ringgit. We can expect the ringgit to further rally against the US dollar should the current momentum continue,” he told Business Times.