Saturday, September 18

Ringgit to continue seeing near-term pressure but long-term growth

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The recent weakness of the MYR is mostly attributed to a stronger US dollar on the back of the fed embarking on more aggressive rate hikes in 2018; rising concerns over the emerging market debt crisis and the US-China trade war.

KUCHING: While the ringgit has started off the year strong with a continued strengthening against the US dollar (USD), it has recently weakened and ended up breaching the psychological level of 4.00 against the USD.

To recap, the ringgit was floating around 4.00 at the start of this year but quickly strengthened to 3.86 to 3.87 levels in early April.

However, since then, the local currency has reverted back to the current above 4.00 levels.

According to the research arm of AmBank (M) Bhd (AmBank Research) the recent weakness of the MYR is mostly attributed to a stronger US dollar on the back of the fed embarking on more aggressive rate hikes in 2018; rising concerns over the emerging market debt crisis and the US-China trade war.

While domestic noises such as the recent shock GE14 outcome and cancelling of several local mega infrastructure projects were also factors in the ringgit’s weakening, AmBank Research guides that the impact from domestic noises is softer.

Despite the weakness and headwinds, AmBank research reckons that the ringgit is still very much undervalued at this juncture and opines that the currency will strengthen in the longer term.

For the long-term outlook of the ringgit, AmBank Research guided that their long-term analysis suggests that the USD/MYR is on its strengthening cycle from 2017 and should stay so until 2024.

“Apart from the support coming from the domestic fundamentals, the Ringgit will also benefit from the weakening cycle of the US dollar which should last until 2024.

“This probably explains why the ringgit is still performing better than regional currencies against the USD as reflected in Malaysia’s real effective exchange rate index (REER),” said the research house.

However, in the near term, the US dollar-ringgit is expected to be underpinned by external noises such as the trade war, the US and ECB policy rate directions, emerging market noises, the US mid-term presidential elections and geopolitical tensions.

Because of these external noises, AmBank research expects the MYR to remain in range bound against the USD while domestic noises will have a lesser impact on the currency.

“Hence, we see the US dollar-ringgit trading at around 3.98 to 4.02 in 2Q2018 and gradually settle at around 3.90 to 3.93 by the end of 2018. Our assessment continues to show that the ringgit is still undervalued based on the REER as well as our trend analysis.

“Our fair value for the MYR remains at 3.80 to 3.82 levels,” said the research arm.