RINGGIT EXPECTED TO RISE TO RM4.43 AGAINST US DOLLAR AT YEAR-END - MIDF AMANAH

By Karina Imran

KUALA LUMPUR, July 2 (Bernama) -- The ringgit is expected to appreciate in the second half of 2024 (2H 2024) and close the year stronger at RM4.43 against the greenback as the US Federal Reserve (Fed) moves closer to cutting interest rates, said MIDF Amanah Investment Bank Bhd (MIDF Amanah) 

The influx of foreign funds into emerging markets is expected to benefit regional currencies and the ringgit.

"The expected recovery in Malaysia's external trade and an optimistic economic outlook are poised to bolster the ringgit's performance this year.

"Elevated commodity prices would also drive increased demand for the ringgit.  Furthermore, the ringgit will likely benefit from anticipated policy easing by major central banks while Bank Negara Malaysia (BNM) is expected to maintain the OPR (overnight policy rate) at 3.0 per cent this year," it said in a note today.

Despite its optimism for the ringgit's appreciation in the latter part of 2024, MIDF Amanah remains cautious of downside risks, primarily from external factors.  For instance, weaker growth in China and the US, as well as escalating geopolitical tensions could negatively impact Malaysia’s external trade recovery, thereby reducing support for the ringgit.  

It also pointed out that the extended strength of the US dollar, particularly if the Fed delays rate cuts further due to persistently high inflation or stronger-than-expected US economic growth, would also weaken the ringgit's prospects.

In June, the MIDF Trade-Weighted Ringgit Index (TWRI) rose by 0.2 per cent month-on-month (m-o-m) to 86.25, signalling the ringgit’s outperformance against the currencies of Malaysia’s trading partners. 

Year-to-date (YTD), the index gained by 1.1 per cent, underpinned by the ringgit’s gains against the Japanese yen (10.3 per cent), the Korean won (3.8 per cent) and the Thai baht (3.8 per cent).

BMI - Fitch Solutions company - also expects the ringgit to appreciate later this year, rising from RM4.70 against the US dollar currently to RM4.55 against the US dollar by the end of 2024. 

For 2025, BMI expects the ringgit to strengthen by 3.3 per cent, reaching RM4.40 versus the US dollar. "Over the medium term, we hold a positive view on the ringgit as narrowing interest rate differentials with the US and a relatively strong growth outlook should remain supportive of the currency," it said. 

BMI has revised its end-2024 Fed funds rate forecast to 5.0 per cent from 4.75 per cent, which implies that narrowing yield differentials would be supportive of the ringgit, particularly if BNM leaves its overnight policy rate on hold at 3.0 per cent through to the end of 2024. "Risks to our forecasts hinge largely on the Fed’s interest rate trajectory and China’s recovery," it said in a note.

From a growth perspective, Malaysia’s relatively strong real gross domestic product (GDP) growth outlook vis-a-vis the US would bode well for investor sentiment and provide a favourable backdrop for the ringgit. As such, BMI expects Malaysia’s real GDP growth to accelerate from 3.7 per cent in 2023 to 4.4 per cent and 4.5 per cent in 2024 and 2025, respectively.

Resilient foreign direct investment (FDI) inflows would continue to be supportive of the ringgit, said BMI.

-- BERNAMA