Ringgit may weaken further on lira, trade war impact
Impact from Turkish lira crisis, US-China trade war prompting economists to revise downwards year-end target
THE Turkish lira crisis has added fuel to the ringgit’s fall, prompting economists to revise downwards the currency’s yearend target again.
The last revision about a month ago had cited the trade tension between United States and China as one of the factors leading to the currency’s weakness, besides the prospect of rise in interest rates in the US.
Now, with concerns rising over the possibility of a contagion across emerging market currencies, economists expect the ringgit, which had yet to recover after falling to 4.10 against the US dollar last Wednesday, to continue to weaken.
Other than the prospects of higher US interest rates and rising Treasury yields, Socioeconomic Research Centre executive director Lee Heng Guie said fears of a contagion risk in emerging markets would continue to weigh on the ringgit.
“The narrowing yield between Malaysia and US assets (after the US interest hike) could make the ringgit asset less attractive.”
AmBank group chief economist and head of research Dr Anthony Dass said the impact on ringgit were mostly coming from the global market, with lira crisis being the additional factor.
According to Bloomberg, RBC Capital Markets said ringgit might weaken further as the bad news has not been priced in.
The currency, along with rupee and rupiah, were the most vulnerable in Asia from an external liquidity perspective, it said.
However, the Malaysian Rating Corp Bhd said the downside of the ringgit would be capped by strong economic fundamentals in the medium term.
“We believe that, aside from external factors, internal factors that determine the ringgit’s trajectory against the greenback would include the government’s medium-term deficit, debt reduction plans and economic growth trajectory,” it said.
Economists surveyed by Bloomberg had revised downward the ringgit year-end target again to 4.03 against the US dollar from 4.0 last month.
Last month, the target was revised downward from 3.93.