Ringgit to appreciate further as funds shift back to EMs


Analysts expect that the ringgit could appreciate further against the dollar this year, driven by the flow of funds bank into emerging markets and the recovery in external trade. – Bernama photo

KUCHING (April 1): The Malaysian ringgit appreciated 0.4 per cent month-on-month (m-o-m) to RM4.725 against the dollar in March 2024, despite the broad strengthening of the dollar in the first three months.

Analysts expect that this year, the ringgit could appreciate further against the dollar, driven by the flow of funds bank into emerging markets (EMs) and the recovery in external trade.

In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that on average, the ringgit strengthened by 1.1 per cent m-o-m to RM4.716.

It said, the intra-month movement saw the ringgit strengthened from its weakest closing on the first day of the month at RM4.746 towards the intra-month high at RM4.678 on March 12, 2024, which was the strongest closing since mid-January 2024.

However, the ringgit weakened in the latter part of the month following the broad strengthening of the dollar because a series of encouraging US economic data delayed the need for immediate policy easing by the US Fed.

On another note, commodity price movement was also supportive for the ringgit; Brent crude oil prices soared by +4.6 per cent m-o-m to US$87.48pb.

“We still conclude that although Malaysia’s growth fundamentals remained supportive of the ringgit as domestic demand, for example, remained expansionary, we saw expectations of the Fed’s future policy direction continued to affect changes in the ringgit’s exchange rate versus the US dollar.

“Looking ahead, we anticipate the ringgit, along with other regional currencies, would appreciate against the US dollars in 2024, buoyed by the reversal of funds flowing back into EMs and the recovery in external trade,” it opined.

It added that this expected appreciation is primarily due to the narrowing differential of interest rates, with the Fed anticipated to reduce its policy rates vis-à-vis BNM’s decision which MIDF Research forecast will maintain the OPR at 3.00 per cent throughout the year.

“Such monetary adjustments are likely to favour the ringgit along with other currencies in the region as capital flows are expected to shift back towards EMs.

“Furthermore, the ringgit should gain from a resurgence in external trade activities as Malaysia continues to record trade surplus,” MIDF Research added.

Recent measures by the government and BNM to promote repatriations of investment income by public corporations from overseas markets will also support ringgit.

However, it cautioned that the possibility of a recession in the US and enduring challenges in global trade and manufacturing sectors could keep the ringgit’s performance subdued.

“Additionally, a sustained strong performance of the US dollar, particularly if the Fed postpones rate cuts due to stubbornly high inflation or a stronger-than-expected US economic performance, could further dampen the ringgit’s outlook,” it said.