Malaysian Institute of Economic Research executive director Dr Anthony Dass.
PETALING JAYA: The strength of the ringgit in the near term will depend on the magnitude of the US Federal Reserve (Fed) rate cut and growth of the China economy, says Malaysian Institute of Economic Research executive director Dr Anthony Dass.
He said a bigger than anticipated rate cut by the Fed and stronger than expected growth in China will ease some downward pressure on the local currency.
“Malaysia, like other Asian economies, has faced the impact from China. While some recent stimulus measures have boosted regional assets temporarily, the broader slowdown has put additional pressure on export-reliant currencies like the ringgit,” he told StarBiz.
According to Dass, the Fed’s interest rate hikes over the past two years have created a stark interest rate differential, making US assets more attractive to investors.
“Although rate cuts are anticipated in 2024, they are projected to be modest, with the Fed’s expected to remain cautious, thereby supporting the dollar’s strength relative to the ringgit and other Asian currencies,” he said.
Besides that, Dass said the US presidential election that will take place on Nov 5, has heightened market volatility.
“With candidates potentially favouring different trade policies, there’s a chance of renewed US-China trade tensions, which could further affect Malaysia’s trade prospects and currency stability,” he noted.
A recent Bloomberg report stated that the ringgit is on course for the worst month since 2015, down by more than 6%.
According to the report, the renewed strength in the dollar has battered Asian currencies, with most falling under intense pressure last month as traders reassessed the pace of Fed interest-rate cuts and avoided risky assets in the run-up to the polls.
However, not all hold the same sentiment.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the heightened uncertainties over the US presidential election and the US Federal Open Market Committee meeting next week are the main concerns.
He explained that the demand for the US dollar will be higher when the degree of market uncertainties are high, but the Fed will cut interest rates.
“It’s a question of the degree of monetary policy easing that will be prescribed. It appears that the Feds will stick to its standard 25 basis points cut next week. In saying that, I believe the ringgit will firm up further once the uncertainties are cleared,” he said.TA Research concurred, stating that looking ahead to 2025, it expects the ringgit’s upward trajectory to continue with a high probability of breaking the RM4 psychological barrier and testing the next support level at RM3.90.
“Although some volatility is expected between RM4.30 and RM3.90, the ringgit could record a stronger average of RM4.10 in 2025, better than the expected RM4.55 this year,” it said.
The research house added that the ringgit is most likely undergoing a “correction phase” at the moment, but on a brighter note, the worst may be behind as the ringgit recovered from being above RM4.60 for nearly three years.
It added this recovery is bolstered by strong economic fundamentals and improving investor sentiment towards Malaysia.
“Over the medium term, we maintain a positive outlook on the ringgit, supported by narrowing yield differentials with the United States and a relatively resilient domestic economic growth outlook. We believe there is further potential for appreciation in the long term, particularly if the Fed continues its monetary easing,” it said.
As for factors that might influence a break below RM4, the research house said economic growth, widening trade surplus, an increase in foreign direct investments as well as a strong global demand for Malaysian bonds will provide a boost.
Notably, the report also said the ringgit’s appreciation has varied sectoral impacts, whereby sectors that gain from lower import costs and foreign exchange gains from US dollar-denominated debt will see a positive impact.
This includes building materials, consumer goods, insurance, media, power and utilities, and transportation.
“But sectors reliant on foreign revenue, such as automotive, gaming, healthcare, oil and gas, plantation, and technology – face revenue pressures as foreign income loses value. Banking must also watch regional currency fluctuations that may reduce earning.”
