KUALA LUMPUR (May 19): The Malaysian ringgit weakened past 4.4 against the US dollar for the first time since the onset of the Covid-19 pandemic in March 2020 on Thursday (May 19), after depreciating to its weakest point so far on Thursday at 4.4078 against a strengthening US dollar, in anticipation of US interest rate hikes to fight inflation.

At 5pm on Thursday, the ringgit stood at 4.4045 against the US dollar, gaining some strength from its low point. During the previous day, the local note was trading at 4.3967 against the US dollar.

The last time the ringgit weakened past 4.4 against the US dollar was in March 2020, when it traded at 4.4100 against the US dollar, before strengthening to 4.3707 on March 26, 2020, according to Bank Negara Malaysia updates. 

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the ringgit is extremely undervalued based on the real effective exchange rate (REER). 

On the other hand, he said the foreign exchange (fx) market is going to be volatile, as the US Federal Reserve (Fed) is expected to be hawkish in their monetary policy stance, and this will inadvertently contribute to the stronger US dollar. 

“With surplus in current account balance and reasonable level of fx reserve, the ringgit should be able to stabilize at some point in the future. For now, the external event will dominate the market sentiments and [the] ringgit will remain weak in the near term,” Mohd Afzanizam told The Edge. 

It was reported that the ringgit was, however, traded mostly stronger against a basket of major currencies. The ringgit appreciated against the Singapore dollar to 3.1693/1717 from Wednesday's close of 3.1713/1728, appreciated vis-a-vis the euro to 4.6200/6231 from 4.6268/6284, and strengthened versus the British pound to 5.4406/4443 from 5.4554/4573.

However, the ringgit weakened versus the Japanese yen to 3.4269/4295, from 3.4041/4055.

Overnight on Wednesday, Reuters reported that global stocks plunged and the US dollar strengthened for the first time in four sessions on Wednesday, as concerns about rising inflation on economic growth soured sentiment. It was reported that the mood was underscored by a 9% surge in British consumer prices and a faster-than-expected acceleration in inflation in Canada.

"The US dollar gained ground as the sell-off in risk assets boosted the safe-haven appeal of the greenback, which was on pace to snap a three-session losing streak, a day after Fed Chair Jerome Powell pledged the US central bank would ratchet up rates as high as needed to combat rising inflation,” Reuters reported.

On Thursday, Hebe Chen, market analyst at IG was quoted as saying: "It must be said that the concern for inflation has never gone away since we stepped into 2022. However, while things haven't reached the point of no return, they are seemingly heading in the direction of 'out of control'. That is probably the most worrying part for the market."