RINGGIT GAINS GROUND ON GREENBACK

Currency strengthens on trade optimism, Bank Negara maintaining interest rate

THE ringgit has risen to be the second best performing currency in Asia after yuan since beginning of the week.

Among the emerging economies, the local currency climbed to fourth place after yuan, Columbian peso and South African rand.

This week has seen the ringgit improve to RM4.14 against the US dollar for the first time since July 31 this year.

The strong performance was due partly to renewed optimism over trade talks between the United States and China in the past one week, which saw both sides agree to simultaneously cancel some existing tariffs on each other’s goods, said analysts.

Bank Negara Malaysia’s move to maintain the Overnight Policy Rate at three per cent also helped lift the ringgit, they added.

An economist predicted the local unit to hit RM4.10 against the greenback this month.

Analysts said the ringgit’s future performance would be driven by trade sentiment between US and China as well as the US and Malaysia’s central banks’ stance on monetary policy.

Bank Negara’s potential rate cut in the first quarter and potential two or three rate cuts by the Federal Reserve may provide positive interest rate differentials, said one of the analysts.

“This would potentially boost fund flows into Malaysia’s bond market,” he added.

AmBank group chief economist and head of research Dr Anthony Dass expects the ringgit to reach RM4.10 by month-end, driven partly by positive trade news.

“The continued positive developments on US-China trade talks should (help) reduce some level of global volatility,” he said in a note.

However, the risk of unanticipated shock still remained, he added.

Dass has revised the year-end target for the ringgit against the dollar to 4.05-4.10, from 4.19-4.21 previously.

However, should adverse noises emerge, especially on trade news, the ringgit could ease back to the 4.15–4.19 level, he added.

Bloomberg’s survey of economists showed that the median year-end forecast for the ringgit had improved to RM4.19 from RM4.21 previously.

FXTM market analyst Han Tan said developments on the US and China trade talks would continue to be the main market driver.

He said it would boost the ringgit’s performance should signing of the “phase one” deal between the two economic giants take place.

“Although much of the optimism has already been baked into the markets, an official signing could still trigger more upside for Asian currencies,” said Tan.

Some economists, however, have maintained their forecasts for the ringgit, given the uncertainty surrounding the oil market as well as trade negotiations between US and China.

Kenanga Research kept its year-end forecast for the ringgit at RM4.20 as a result of continued portfolio capital outflow and weaker oil price.