Friday, January 21

‘Ringgit is expected to stay weak in 1H22’

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The ringgit is expected to stay weak in 1H22 and pull back slightly in 2H22, driven by greater clarity on external and domestic fronts. – AFP photo

KUCHING (January 12): The ringgit is expected to stay weak in the first half of 2022 (1H22) and pull back slightly in 2H22, driven by greater clarity on external and domestic fronts, AmBank Research projects.

According to AmBank Research, the ringgit’s outlook in 2022 continues to be challenged by a combination of external and internal factors.

“While the long-term trading range of the local currency is between RM3.80 and RM4.50 against the US dollar, there is more upside risk on the currency in 1H22 and some pullback in the 2H22,” the research firm said.

“Selling pressure on the ringgit is expected in 1H22 and that could see the ringgit reach the 4.25 levels and possibly touching 4.30.

“The upside risk would be driven by a combination of external and domestic factors.”

AmBank Research highlighted that on the external front, it would be influenced by the strengthening of the US dollar itself on the back of a more hawkish tone by the Fed.

“Besides, we have the uncertainties on Omicron and the new variants’ impact on the global economy that could result in an increase in demand for the US dollar as a safe-haven hedge.

“The outlook of the ringgit also depends on the direction of the Chinese yuan against the US dollar, global oil price movements and geopolitical issues such as the US mid-term election.”

AmBank Research noted that on the local front, the focus will be on the authorities’ ability to continue enhancing the economy and financial resilience to lift the strength of the ringgit against major foreign currencies.

The research firm further noted that these will include maintaining a sustainable economic growth by rebuilding Malaysia’s fiscal position in containing the debt level and enhancing the competitive investment climate.

“It is also vital to provide a clear, stable and certain policy landscape to attract the inflows of long-term capital and portfolio investment into domestic equity and bond markets.

“The government needs to also address the increasing financial strains on the households and businesses impacted from the pandemic and now post-floods.

“These steps are particularly important especially when the stimulus measures are rolled back.”

That said, AmBank Research opined that the upside risk on the ringgit could be contained with expectations that the domestic economy would remain open for the larger part of the year in 2022, supported by firm crude oil prices, a gradual weakening of the Chinese yuan, a more stable environment on the pandemic, and greater policy clarity, implementation and outcome.

“Expectations are that the local currency in 2H22 will pull back from its weakening trend to hover around the 4.20 levels in 2H22.”