Ringgit to recover gradually as M’sian economy still expected to grow at sustained pace

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KUCHING: The ringgit is expected to recover gradually over time as the Malaysian economy is still expected to retain its growth pace, analysts observed.

RHB Research Sdn Bhd (RHB Research) pointed out that the ringgit has shown some strengthening in the past few days, appreciating by 1.2 per cent to RM4.1785 per dollar as at November 16, from RM4.229 per dollar on November 8.

As at 3pm yesterday, the ringgit strengthened further by circa 0.6 per cent to RM4.155 per dollar.

The research team believed that this could be due to the weaker US dollar as well as hawkish sentiments by Bank Negara Malaysia (BNM) from its monetary policy statement released last week and expectations of a wider current account surplus recorded in the third quarter of 2017 (3Q17).

During the same period, US dollar, as indicated in the Dollar Index Spot (DXY), depreciated by one per cent over the same period, likely due to doubts on the prospects of the US tax reform plan, it said.

However, it pointed out that the uptick in the core CPI data on Thursday, strengthened the US Federal Reserve’s (US Fed) stance on a December hike, causing US dollar to recover by 0.1 per cent.

“The ringgit sentiment was also lifted by the recent hawkish monetary policy statement by BNM on November 9, which sparked a rally in the bond markets as the 10-Year MGS yield to fall 13bps.

“With the equity market (KLCI Index) retreating by 1.5 per cent during the same period, it indicates that foreign investors are making a switch from equities to the fixed income market,” it said.

It also highlighted that the recent ringgit rally had also been aided by expectations of a wider current account surplus along with the continued strong economic growth for 3Q17, scheduled to be released this week.

“While the ringgit has strengthened significantly, oil prices dipped three per cent during the November 8 to 16 period, indicating that ringgit remained disengaged with movements in global crude prices,” it added.

All in, RHB Research opined, “As the Malaysian economy is still expected to grow at a stronger pace and since the ringgit has earlier overshot on the downside, we expect ringgit to recover gradually over time, as its economic fundamentals remain sound.

“Furthermore, a lot of positive news has been factored into the earlier surge of US dollar.”

As a result, the research team raised its forecast for ringgit to RM4.10 per US dollar as at end-2018, from RM4.15 per US dollar previously, and compared to RM4.22 per US dollar expected this year.

“Nevertheless, the volatility in ringgit could still persist in the near term, given expectations of further US Fed rate hikes and shrinking of the US balance sheet, vulnerability from large foreign holdings of fixed income instruments in the country, and volatility of oil prices,” RHB Research cautioned.