Ringgit likely to appreciate towards year-end despite current weakness
KUCHING: The ringgit is expected to appreciate towards the end of the year, despite its current weakness against other currencies.
According to MIDF Amanah Investment Bank Bhd’s research team (MIDF Research), at closing of August 2023, the ringgit ended weaker against the euro (down 1.8 per cent m-o-m), pound sterling (down 1.8 per cent m-om), Chinese yuan (down 1.3 per cent m-o-m), and Canadian dollar (down 0.6 per cent m-o-m) but stronger by 0.6 per cent m-o-m against the Australian dollar.
It explained that the overall weakness of ringgit at the end of August 2023 was due to relatively sharper fall related to concerns over exposure to China’s real estate crisis.
Although Malaysia’s banking system has exposure to the local subsidiary of Country Garden, China’s struggling major property developer, which caused ringgit to be more susceptible to the slowdown in China’s property market, BNM indicated the exposure is rather limited, amounting to less than 0.1 per cent of outstanding banking system loans and bonds as of June 2023.
On average, the ringgit depreciated by five per cent YTD against US dollar, sharper than most other currencies except Japanese yen, which depreciated by 9.9 per cent YTD.
Similar to ringgit, regional currencies also weakened this year on the back of the strength in US dollars.
In contrast, Indonesian rupiah is the best performing regional currency, with appreciation of 2.3 per cent YTD so far this year.
“Apart from the delayed pivot by the Fed, the weakening of regional currencies was linked to concerns over slower-thanexpected economic recovery in China, which also dragged down regional trade and production activities.
“Ringgit was also among the currecies which weakened the most from the month-onmonth performance in Aug-23, depreciating by -2.8 per cent mo-m which was not as sharp as Philipine peso, Australian dollar, and Korean won,” the research team said.
Nevertheless, MIDF Research expected the ringgit to appreciate towards the end of the year, reaching RM4.24 and averaging at RM4.43 for the full year 2023.
“We foresee the ringgit to end the year around RM4.24, and averaging at RM4.43 for the full year 2023 (year-to-date average: RM4.49).
“We foresee emerging market currencies including ringgit, would appreciate, supported by reversal of fund flows into riskier markets. In particular, as we foresee the Fed to keep the fed funds rate unchanged at 5.25 to 5.50 per cent and BNM to maintain OPR at 3.00 per cent for the rest of the year, we do not expect pressures from interest rate differential would attract more funds into the US market.
“In other words, we expect there will be rebalancing of fund flows to other parts of the world, including Malaysia. We also maintain a bullish view on the local currency as we anticipate expectations for the Fed to stay hawkish will subside in the later part of the year, and further supported by the positive fundamentals in Malaysia’s domestic economic conditions and continued current account surplus.
“The possible boost to external trade outlook and renewed pick-up in China’s economic recovery would also be positive for ringgit. While we expect ringgit to appreciate later this year, there is weakening bias as Fed yet to declare the end of its tightening cycle and concerns over China’s growth prospects,” MIDF Research said.