Fitch Solutions have revised both their 2021 and 2022 average exchange rate forecasts to RM 4.05 from RM 4.15.
According to the Research House, the key driving factors behind both revisions are the strong rally of the unit against the USD over the course of H220 and the generally dim outlook for the green back amid loose fiscal and monetary policy in the US which is likely to persist for the next two years at least.
“Over the long-term, the ringgit has a further supporting factor in being undervalued in real effective exchange rate terms. Our forecasts are subject to downside risks, arising primarily from the third wave of Covid-19 infections that has seen daily cases remain well above 1,000 a day since October 2020 in Malaysia,” it said in a research note.
Combined with a likely weakening bias in the USD over the short term, the ringgit is likely to remain close to current levels even if prospects for further appreciation are limited, especially considering risks arising from an aggressive third wave of Covid-19 infections.
“In light of these factors, we have revised our 2021 average exchange rate forecast to RM 4.050/ USD, from RM 4.150/USD previously.”
Fitch Solutions further stated that the ringgit’s bullish technical signals bolster their case for it to remain strong over the short-term, with the unit appreciating beyond the 50,100 and 200-day simple moving averages and having bounced away from the 50-day moving average in Nov 2020.
With vaccination programmes begun in many markets worldwide, suggesting scope for a rally in riskier assets over the coming months, though the ringgit will likely benefit less from this possible development due to Malaysia’s third wave.
“Accordingly, we expect the unit to range-trade between MYR3.90/USD and MYR4.20/USD over the short-term,” the research house said.
Over the long term, Fitch Solutions expect the ringgit to remain on a similarly strong footing, trading slightly stronger than the midpoint of its long-term trading range between RM 3.800/USD and RM 4.500/USD.
