Ringgit likely to retrace gains against the greenback

PETALING JAYA: The ringgit gains against the US dollar over the past few days may retrace as the currency’s fundamentals have not changed, says a currency analyst.

Maybank Group regional head of FX Research Saktiandi Supaat said caution was needed on betting that the recent gains by the local unit would be sustained.

“Essentially, the overnight policy rate hikes by the US Federal Reserve (Fed) will still be there while the local currency’s fundamentals have not really changed,” he said, adding the trend for the local currency against the greenback would still be choppy.

Beyond the Fed’s rate hikes, the factor which helped the ringgit rise in the past trading week had been the strengthening of the yuan following China’s support of the distressed property sector and signs of the country easing its zero-covid rules.

China rolled out some measures including the extension of repayment periods, facilitating finances for developers and lowering mortgage down-payments in support of its real estate market.

Saktiandi said the move by Beijing has helped the ringgit due to its strong correlation with the yuan.

The ringgit closed 0.6% higher at RM4.59 against the US dollar as market bet that the Fed would ease on rate hikes as inflation showed signs of getting lower in the American economy.

UOB Group FX Insights report noted that the uptrend in ringgit/dollar pair appeared to have ended as it plunged by 2.55% last week.

It added the strong downward momentum suggested the pullback in greenback/ringgit rate has room to extend.

“In view of the oversold conditions, a sustained decline of below 4.55 is unlikely this week.

“On the upside, a break of 4.65 would indicate that the weakness in the dollar/ringgit exchange has stabilised. Looking ahead, the next support level below 4.55 is at 4.52,” the bank said in a report yesterday.

Economist Carmelo Ferlito, who is chief executive officer of the Centre for Market Education, said the recent gains made by the ringgit against the greenback had been significant if looked at from a one-year trend of both currencies.

It is a notable gain particularly when compared with the declining ringgit trend over the past months, according to him.

“However, we are close to an important political moment and, while the evolution of the international scenario remains very important, choices that will be taken domestically will also matter,” he said.

Therefore, he said the local currency’s future trend would be known after the new government is formed and a policy agenda announced.

Carmelo said the recent gains of ringgit were due to a mix of slowing inflation pressures in the United States, with a potentially less aggressive monetary policy, as well as the

recent good performance of the Malaysian economy.

On the impact of the ringgit against inflationary pressures, Carmelo said a stronger currency would be able to help cool down food price infation.

“Let’s not forget to keep the euro in the loop of our consideration as it has gained value recently,” he said.

According to Supaat, a stronger ringgit will help mitigate imported inflation slightly if it is sustained.

From a technical perspective, the ringgit will trade in a range of between RM4.50 and RM4.70 against the greenback.

“If the support of RM4.50 is broken, the ringgit will see a sustained move to RM4.40,” he added.