Ringgit Rally Continues Next Week

The strong ringgit rally resulting from less threatening US inflation print is set to continue with the local unit expected to trade between 4.3250 and 4.3450 next week.

The latest data continued to infuse optimism that the US Federal Reserve could further ease its tightening policy.

SPI Asset Management managing director Stephen Innes said offshore US dollars from local high net-worth investors could be re-shored as confidence builds on the ringgit’s direction, which could trigger a break of 4.30 in the not-too-distant future.

US consumer price pressure moderated again in December, bolstering hopes that inflation will continue to ease this year, and raising hope for less strict action by the Fed, and that the world’s largest economy may be able to avoid a recession.

It was reported that US inflation soften to 6.5 per cent in December, marking six straight months of receding annual price growth.

‘‘Foreign institutional US dollar investors will eventually move out of the risk curve and start buying Malaysian assets. I suspect that will be in earnest when China’s Covid-19 cases abate. Then we will see the next significant gains,’’ he told Bernama.

However, he said as the Lunar New Year is coming soon, there are also worries over possible new waves.

Overall, he reckons that political stability will be a central theme for the ringgit’s strength in 2023.

‘‘Foreign investors will keep an eye on politics, but the consensus is moving in a favourable direction.

‘‘Local and regional investors are buying the ringgit and they expect a massive increase in exports and inbound tourism,’’ he noted.

Next week, all eyes will be on the domestic overnight policy rate (OPR) as the first Monetary Policy Committee (MPC) meeting for 2023 convenes on Jan 18 and 19.

Malaysia’s inflation stood at 4.0 per cent in October and November 2022.

Innes said a final rate hike in January of 25 basis points was likely to take place followed by a prolonged pause to support growth and to allow the lagged effect to do its part.

‘‘I see rates peaking in Southeast Asia. The Fed rates downshift allows regional central banks more breathing room,’’ he added.

The ringgit ended the week at a nearly 10-month high as inflows continued its support.

On a week-on-week basis, the ringgit was stronger against the US dollar at 4.3325/3375 on Friday from 4.4005/4070 a week earlier.

The local note, however, was traded easier against a basket of major currencies.

It was weaker against the British pound at RM 5.2973/3035 from 5.2159/2336 the previous Friday and depreciated against the euro at 4.6986/7040 from 4.6254/6322 last week.

The local unit slipped vis-a-vis the Japanese yen to 3.3703/3744 from 3.2739/2793 and was lower against the Singapore dollar at 3.2782/2825 from 3.2664/2717 previously.

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