KUALA LUMPUR (May 13): HSBC Global Research has revised its year-end forecast for the ringgit from 4.45 to 4.20 against the US dollar, as the heightened external volatility has slightly tipped the balance in favour of the ringgit over the medium term.
Despite the recent rally, the ringgit is expected to continue strengthening, thanks to factors such as repatriation of foreign earnings by government-linked companies (GLCs) and investment firms (GLICS), and a slowdown in residents' foreign exchange purchases for outward portfolio investments, which had previously pressured the local currency.
The ringgit's recent gains were also attributed to a broader de-dollarisation trend, and continued negotiations between the US and Asian economies, added the firm.
“We turned slightly more constructive on the outlook for the MYR,” HSBC Global Research said in a note recently.
“In our view, the elevated external volatility has likely tipped the balance slightly more in favour of the MYR over the medium term,” it said.
The research firm flagged that the persistent external volatility could encourage repatriation of foreign earnings by Malaysian government-linked entities.
HSBC Global Research noted that the GLCs and GLICs had begun repatriating funds in the second quarter of 2024 under Bank Negara Malaysia’s moral suasion, resulting in increased and more stable foreign exchange inflows.
“It helped dampen the sensitivity of the MYR to external headwinds,” it said.
Daily foreign exchange turnover had climbed to an average of US$20.2 billion (RM87.4 billion) in March from US$17.4 billion in February, a sign of rising repatriation activity, noted HSBC Global Research.