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PETALING JAYA: After witnessing the ringgit fall in March to its lowest level this year against the US dollar, bright spots began to emerge for the local currency to appreciate against the US dollar.
Economists and currency strategists attributed the strength of the ringgit to the global economic recovery fueled by the development of the Covid-19 vaccine, strong crude oil prices and the decision by the United States Federal Reserve to keep its interest rates super. low.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, who expects the ringgit to stand at RMB 4 to the dollar next year, told StarBiz that he believed the local currency would appreciate more against the US dollar.
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He said the main reason would be the improvement in the world economy. The launch of the Covid-19 vaccine is the main factor that supports this thesis, since it would allow the reopening of the economy, which would stimulate economic activities.
“This, in turn, will help improve demand for fuel. And the decision by OPEC + member countries to cut oil production by 0.5 million barrels per day (mbpd) from 7.7 mbpd to 7.2 mbpd in 2021 should also support crude prices.
“There is a strong relationship between the ringgit and crude oil prices, given its importance to the Malaysian economy, especially with regard to government revenue and the oil and gas sector in the country.”
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, who expects the ringgit to stand at RMB 4 to the dollar next year, told StarBiz that he believed the local currency would appreciate more against the US dollar.
Afzanizam anticipates that the overnight policy rate will remain unchanged at 1.75% next year.
From an interest rate differential perspective compared to developed countries, he said Malaysian assets would provide better returns and attract investors seeking higher returns.
“So the stage is set for a greater appreciation of the ringgit,” he said.
He also noted that the value of the US dollar has been trending down, as the US dollar index (DXY) has fallen to around 91 recently from 102,487 in mid-March this year.
Therefore, he said, risk mode appeared to have been the main driver of the dollar’s weakness, but intermittently, demand for the US dollar could be higher as uncertainties increased.
From the nominal effective exchange rate (NEER), Afzanizam said that the ringgit may still hover below 100 points. In that regard, he noted that the ringgit is weaker against certain currencies, namely the euro, the South Korean won, the Australian dollar, the Chinese yuan, the Japanese yen and the Singapore dollar.
Juwai IQI Chief Economist Shan Saeed (pictured below) expects the ringgit to trade between 3.67 and 4.10 against the US dollar next year with strong structural stability amid global economic weaknesses in the market. .
He said the dollar is heading to tail risk and moving south. The Fed has created two final risks: one is deflation and the other is inflation. The US economy, he said, is in the “biggest hole” in the modern era of economic history.
“The US economy is heading into an L-shaped recession. Forty-seven million people have lost their jobs in the past 11 months. Unemployment is out of control. Debts remain unpaid. Bankruptcies are skyrocketing. These factors will affect the dollar.
“We expect the ringgit to remain stable in 2021 amid the chaos in the markets. The macro factors for the ringgit are quite stable and positive despite the headwinds in the exogenous environment.
“Our outlook for the local currency is based on the premise that the US dollar will depreciate significantly between 20% and 40% and that the Fed will keep its interest rates low for the next three years.
“In addition to this, we expect oil prices to rise and trade between $ 50 and $ 65 a barrel, and macroeconomic stability will boost economic confidence,” Shan said.
Juwai IQI is a leading property, technology and investment company that operates and advises clients in Kuala Lumpur, Singapore, Hong Kong, London and Melbourne.
At press time, the ringgit was trading at RM4.06 per US dollar compared to RM4.16 a year ago. The ringgit depreciated to its lowest level of the year on March 24, trading at RM4.43 per dollar.
In terms of regional currencies, Shan expects the Singapore rupee, baht, dong, peso and dollar to hold steady like the ringgit as the US dollar heads toward downside risk.
The ringgit, according to AmBank Group chief economist Anthony Dass (pictured below) is poised to stay strong against the dollar.
The US dollar is currently hovering around the lows last seen in April 2018, as investors continue to turn to riskier assets, with analysts expecting this weakness to persist into 2021.
Dass added that a series of successful vaccine trials has generated a windfall for equity markets and other riskier asset classes. It is causing the dollar to slide against most G10 currencies and also currencies such as the ringgit and the yuan, he said.
In addition, President-elect Joe Biden’s electoral victory in the United States and the Fed’s commitment to maintaining its unprecedented accommodative monetary policy stance have raised expectations of reflation in 2021, he said.
“This reflation trade has led to further downside momentum for the dollar. In addition, the recovery in this region, including Malaysia, from the pandemic virus, supported by stimulus measures, would attract funds that should benefit Malaysia. We also expect exports to improve with a view to improving GDP and world trade, ”said Dass.
However, he said some headwinds persist in the ringgit, including political noise and the risk of slower implementation that may result in below-expectations GDP growth.
Dass projects the ringgit for this year and next year to be around RM4.05-RM4.07 and RM4.00-RM4.05 per US dollar, respectively.
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