Analysts see room for stronger ringgit
KUCHING: A weaker US dollar, stronger yuan, favourable domestic macro fundamentals, firm oil prices plus positive benefits from capital flows into this region point to a more favourable outlook for the ringgit.
However, analysts at the research arm of AmBank ( M) Bhd (AmBank Research) in its thematic report on the currency cautioned that a play on the ringgit would be driven by several events like FTSE Russell retaining Malaysia in the World Government Bond Index during its next half-yearly review in March 2020.
It will also be affected by global rating agencies, the Fed ending the easing rate cycle thus provides room for Bank Negara Malaysia (BNM) to institute one rate in the Overnight Policy Rate (OPR), political transition and geopolitical tension.
“The ringgit could reach 4.00 by end of the year against the US dollar from 4.11 in the first quarter of 2020 (1Q20). Conservatively, the ringgit could reach 4.18 by end 2020 from 4.11 in 1Q20,” it forecast.
Last year, despite external headwinds and domestic issues, the ringgit closed stronger, up 1.1 per cent to 4.09 against the US dollar, AmBank Research noted.
During the year, the ringgit traded on a wide range with a high and low of 4.06 and 4.220. For the full year of 2019, the ringgit averaged at 4.14 with the end period at 4.09.
“Importantly, in December when the US dollar lost ground that saw relative gains in currencies like the euro (up 1.2 per cent), sterling (up 2.5 per cent) and Australian dollar (three per cent), interestingly the ringgit also benefitted.
“It gained by 2.1 per cent against the US dollar. It could well mean that the US dollar which may have peaked in September 2019, should gradually slide. This should see the ringgit strengthening. Besides, the yields for between euro, sterling, Australian dollar and ringgit against the US dollar narrowed in 2019 between 30 and 48bps. Yields are expected to narrow further in 2020,” it said.
For the ringgit to strengthen against the US dollar in 2020, AmBank Research said, it would also depend on the yuan, given that these two pairs are closely correlated against the US dollar.
“During the year, the yuan traded on a wide range with a high and low of 6.69 and 7.18. For the full year of 2019, the yuan averaged at 6.91 with the end period at 6.96,” it noted.
“Signs of bottoming out in the Chinese economy are creeping from an earlier low-year base, credit expansion, governmentled investment and flexible monetary policy with more support from the People’s Bank of China (PBoC).
“The risk sentiment is strong onshore. With the return of risk appetite to China following growing optimism on the trade deal with the US and improving Chinese economic momentum, it should see the yuan continuing to strengthen against the US dollar.
“Yuan is expected to reach 6.80 by end-2020 from 6.95 in 1Q20.
“But China’s high debt levels and anticipated shift from a structural current account surplus to a deficit will limit the gains of the yuan against the USD. That probably explains as to why the yuan only appreciated 1.1 per cent against the US dollar in December 2019.
“Besides, the currency is managed by the Chinese monetary authorities and is therefore partially determined by political factors. So, a modest currency depreciation against the US dollar in 2020 is more likely due to declining current account surplus. Conservatively, the yuan could reach 7.15 by end 2020 from 7.00 in 1Q20,” it said.
On Malaysia’s economic performance, AmBank Research noted that despite the external headwinds and domestic challenges, the economy is projected to grow around 4.5 per cent in 2019.
“Global recession worries emerged when the US yield curve inverted. But BNM reduced the OPR by 25bps to three per cent to help absorb some of the slack arising from trade tension and geopolitical risk. Growth was supported by the resilient domestic demand, particularly household spending and complemented by investment and trade,” it added.
“External trade is envisaged to improve with easing trade tension plus a recovery in global demand for electronics more likely in 2H20 and firm commodity prices.
“Benefits from exports are likely to take some time to feed through and not be in the play in 2020. As such, there could be a drag on growth and could outweigh the upside to investment. Growth in 2020 should remain moderate at 4.6 per cent,” AmBank Research said.
The ringgit could reach 4.00 by end of the year against the US dollar from 4.11 in the first quarter of 2020 (1Q20). Conservatively, the ringgit could reach 4.18 by end 2020 from 4.11 in 1Q20. AmBank Research