The ringgit opened higher against the US dollar today (Oct 27) on expectations that the US Federal Reserve (Fed) will ease the pace of interest rate hikes until the end of the year.
Morning trade saw the local currency rising to 4.7020/4.7070 against the greenback from yesterday’s close of 4.7120/4.7165.
Correspondingly, the U.S. dollar slumped in late trading on Wednesday as recent soft U.S. economic data fuelled speculations that the Federal Reserve might be less aggressive in rate hikes.
The dollar index, which measures the greenback against six major peers, fell 1.13 percent to 109.7010.
Market Experts say after seven months of relentless gains, the US Dollar has started a strong bearish move in tandem with the US new home sales data which fell 10.9% to 603,000 units in September from 677,000 units in August.
“The data came in a little higher than expected (603,000 real versus 585,000 forecast), but that was not enough to support the dollar against the ringgit,” Bernama cited a trader saying.
It’s possible that the US dollar-ringgit pair will continue its bearish move over the next few days until it touches the 4.6290 region, where it may find temporary support. Daily trade saw the ringgit transacting lower against a basket of major currencies.
Ringgit To Rise Against The Greenback From 2Q23
AmBank Research cited that the ringgit should start to strengthen against the US dollar from the second quarter of 2023 (2Q23) onwards and settle at the 4.40 level in 4Q23, as the greenback is expected to enter a period of cyclical decline, according to AmBank Research.
The research house said the local currency saw its weakest valuation against the US dollar on March 31, 1998, at 4.88.
“Upside pressure on the currency remains, which will be coming from both external headwinds and domestic noises. We expect the ringgit to weaken further in [1Q23] to 4.80 against the dollar,” it said in a note on Thursday.
AmBank Research forecast the interest rate differential between Malaysia and the US to narrow in the second half of 2023 (2H23).
“With sharp slowdown or recession risk in the US, we are of the view of potential rate pullbacks by the Federal Reserve (Fed) in 2H23.
“With an estimated reduction of 100 basis points (bps) in [2H23], this would mean the interest rate differential would drop from a peak of 1.25%-1.5% to 0.25%-0.5%,” it said.
Besides, it said, the domestic economy would be much more settled post-15th general election.
“This would mean the positive impacts of the 12th Malaysia Plan, foreign direct investment, domestic direct investment, domestic activities, exports, and better management of inflation and Budget 2023 should provide the necessary comfort for the economy to expand around 4.5% in 2023,” the research house said.
Recapping the ringgit’s performance this year, AmBank Research said the Fed’s aggressive rate hikes in 2022 with the aim to cool inflation led to a strong upwards bias on the ringgit.
The currency fell by 13.5% as of Oct 25, despite Bank Negara Malaysia (BNM) raising its policy rates by a cumulative 75 bps to reach 2.5% until October 2022.
“Expectations are for BNM to raise another 25 bps in November 2022 and another 25 bps in January 2023,” it said, adding that this will bring the policy rate back to the pre-Covid-19 level of 3%.
It said the ringgit has remained weak despite the efforts to stabilising the currency by utilising around US$9.5 billion (RM44.77 billion) of BNM’s reserves.
The gross domestic product (GDP) recorded a strong growth of 8.9% year-on-year in 2Q22, it noted, adding that third-quarter 2022 GDP is expected to perform better, projected to hover around 9% to 10% with the support of strong exports and domestic activities.
However, AmBank Research said the GDP is projected to grow at a slower pace in 4Q22 to about 5%.
Despite a strong full-year GDP forecast of around 7.5% to 8%, it said the ringgit is poised to stay weak due to the “dollar play”.
“External headwinds plus domestic noises remain major drawbacks to the ringgit. Also, the interest rate differentials remain wide, favouring the dollar. We project the ringgit in [4Q22] would be at 4.70 against the dollar,” it added.
