‘RINGGIT TO STRENGTHEN NEXT WEEK’
US banking crisis, dovish Fed stance to boost risk-on currencies, says analyst
The Malaysian Institute of Economic Research expects the ringgit to trade between 4.33 and 4.40 versus the US dollar next week.
THE ringgit appreciated by more than 1.8 per cent week-on-week against the US dollar on Thursday despite the United States Federal Reserve’s (Fed) decision to raise the federal funds rate by another 25 basis points (bps).
Economists said the ongoing banking crisis in the US might result in the market further pricing in a more dovish stance from the Fed, leading to the strengthening of risk-on currencies, including the ringgit, against the greenback.
Some economists are bullish about the ringgit’s near-term outlook, given the signs of strong growth fundamentals.
Universiti Tunku Abdul Rahman economics Professor Wong Chin Yoong said the ringgit should continue its rally and head towards 4.3900 against the US dollar next year.
“We know it is the expectation of the Fed’s interest rate hike rather than the level of interest rate that has pushed the ringgit off the cliff in the past 12 months. Now, the effective funds rate has been raised to 4.75 to 5.0 per cent, with the terminal rate of 5.1 per cent.
“Unless the US price consumption expenditures (PCE) inflation rates go up again, which seems even more unlikely in an environment of credit tightening amid the banking crisis, this cycle of interest rate hike has come to an end,” he added.
Wong said any extended rally of the ringgit would depend on the release of the US jobless claims, gross domestic product data and PCE inflation by the end of the month.
Malaysian Institute of Economic Research economist Dr Shankaran Nambiar said the ringgit was expected to gain more strength in the upcoming days as the US dollar weakened.
He described the interest rate hike by the Fed this time as different than before.
The figures for new home sales had been soft and the Fed had turned dovish in its rate tightening, which many analysts saw as the last hike for the year, said Nambiar.
“We can expect the ringgit to trade in the range of 4.33 to 4.40 against the US dollar under these circumstances,” he added.
The ringgit continued its gains against the greenback for the fourth consecutive day on Thursday after the Fed signalled a more dovish monetary stance going forward.
The local note rose to 4.4160/ 4200 from Wednesday’s closing of 4.4530/4580.
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