PETALING JAYA: The ringgit is expected to come under pressure and weaken against the US dollar immediately after the upcoming 15th General Election (GE15) but is anticipated to improve moving into 2023.
Most foreign exchange strategists are of the view that the ringgit could bounce back and strengthen against the greenback next year, as they expect the US Federal Reserve (Fed) to tone down its hawkish pace of interest rate hikes.
The Fed is expected to raise its benchmark overnight interest rates by 75 basis points (bps) to a range of 3.75% to 4%, the fourth such increase in a row, when it meets today to decide on its interest rate direction.
As at press time, the ringgit was trading at RM4.74 against the US dollar.
TA Research said given the current situation and limited catalysts, it is cutting its 2022 average ringgit forecast to RM4.43 against the greenback from RM4.35 previously.
Trend-wise, the research house is predicting it to improve in 2023 from the current range of RM4.65 to RM4.75 against the dollar, aided by the still-solid economic fundamentals and expectations of a less-aggressive monetary tightening in the United States.
It said that by the end of next year, it expects the ringgit to close at RM4.40 to RM4.50 to the dollar.
“However, on average, it will still be at RM4.53 per US dollar for 2023 due to weaker performance in the first half of the year. Consensus is looking at RM4.54 per US dollar on average.
“We opine that the policy focus should not be on controlling the exchange rate or implementing a pegged exchange-rate regime. The ringgit is expected to rebound and we should experience improving long-term trends if we can strengthen our economic fundamentals.
“Failing to do so could lead to greater uncertainties in the domestic economy and risk further depreciation of the ringgit, higher inflation, loss of our competitive edge and greater external debt payment,” it added.
On the impact of GE15 on the ringgit, TA Research said it expects the local currency to react negatively to GE15 results, as it tends to weaken after the election partially due to economic circumstances in certain cases.
This was prevalent in 1990, 1995, 2008, 2013 and 2018 elections and was independent of whether the Barisan Nasional gained traction in the percentage of seats or a new government took over.
Note that the currency was subject to capital controls during the 1999 and 2004 General Elections (the ringgit was pegged at RM3.80 against the greenback).
The research house opined that this could be due to foreign portfolio investors repatriating their income and profits.
As such, TA Research said it would not be surprised if the ringgit weakens against the dollar after GE15.
Historically, the ringgit typically loses 0.7% of its value in the first month, 2.7% in the third, 4.7% in the sixth, 7% in the ninth and 7.1% in the 12th, it noted.
“With evidence showing that the losing frequency was 100% in all previous GEs, the ringgit’s propensity to rebound after the election is low. Yet the tide appears to be turning against this trend at this point.
“Should investors be more optimistic about buying ringgit after GE15?
“Since the dissolution of Parliament on Oct 10, the ringgit has fallen by as much as 1.2%, following its previous pattern. To put that in perspective, the ringgit fell by 0.6% in GE12 and by 2.0% in GE14,” TA Research added.
The Election Commission has announced that polling for GE15 would be held on Nov 19, while the nomination date falls on Nov 5, which allows for two weeks of campaigning.
