KUALA LUMPUR (June 3): The Malaysian ringgit is expected to recover its recent losses in the second half of this year (2H22) on potential correction of the US dollar due to concerns over possible economic slowdown globally amid ongoing liquidity tightening, according to AmBank Research.
The ringgit is expected to continue hovering at around the 4.4000 level against the US dollar over the near term, with risk of weakening further to 4.4500-4.5000 levels amid strengthening of the greenback and weakening of the Chinese currency renminbi (RMB), said AmBank Group chief economist Anthony Dass at a virtual briefing on market outlook on Friday (June 3).
“But going forward to 2H22, I expect the ringgit to strengthen back, because by which time, all these US rate hikes would have been priced in everything, we will be talking about 2023 on how the economy is going to slow down and that would cause the US dollar to correct itself,” he said.
Dass estimated that the ringgit should strengthen back to 4.2000-4.2500 levels against the US dollar by the end of this year.
For the second quarter this year, he expects the ringgit to remain weak as the local currency is trailing closely to the RMB as China is Malaysia’s largest trading partner.
“As long as the RMB is weakening, it is quite tough for the ringgit to strengthen unless Bank Negara Malaysia (BNM) steps in and supports the currency,” he said.
Although the prospect of a general election in Malaysia may also weigh on the ringgit, he said the currency market has largely priced in such political noise and the national poll may only create “very short-term” volatility.
“So you can see, [as] BNM have only used about US$8.5 billion in terms of stabilising the ringgit, they have enough ammunition to stabilise the ringgit because at the peak of 2018-2019, they used about US$24 billion, so there is still buffer,” he said.
“Malaysian businesses today are increasingly disconnecting themselves [from] politics, that is why we see that the business sentiment is positive, FDIs (foreign direct investments) are coming in, all these show that there is a disassociation between the politics and the opportunities to do business,” he added.
Moreover, he said elevated crude oil and crude palm oil prices are also providing a buffer to ringgit depreciation.
The ringgit has weakened by 5.3% against the US dollar year-to-date. And the local currency strengthened 0.1% against the greenback to 4.3865 at the time of writing.