If the Federal Reserve of the United States stops raising interest rates and the 2024 Budget, which will be presented on Friday, is positive, the ringgit might close the year at a high of 4.300 against the US dollar.
Last Friday, the local note maintained its upward trend and ended higher vs the US dollar.
However, the ringgit was still weak month over month (MoM), closing September 1.1% weaker at 4.689.
The ringgit lost 1.5% MoM on a monthly average, falling to RM4.682. On September 27, it even weakened to 4.7080, the lowest point since early November 2022.
On a Friday-to-Friday basis, the ringgit dropped from 4.6930 a week earlier to 4.7115 on October 6.
Due to recent weakness in the ringgit and the Fed’s policy halt, MIDF Research is optimistic that it will conclude the year at 4.30.
A quicker acceleration of China’s economic recovery could potentially benefit the ringgit.
The company kept its 2023 ringgit average projection against the dollar at 4.480.
Once the appeal of the dollar as a safe haven fades, MIDF Research anticipates that emerging market currencies, especially the ringgit, will profit from reverse money flows towards riskier markets.
Dr. Shankaran Nambiar, a senior research fellow at the Malaysian Institute of Economic Research, suggested that the Fed might believe that a larger boost is necessary to control inflation.
“If this is the case, we might see the ringgit continuing to weaken in the coming weeks.”
He claimed that the outcome of the 2024 Budget will likewise affect the value of the local currency.
“If there are sufficient reasons in the budget to buoy optimism, then perhaps the ringgit may be able, to some extent, to defy the pressures otherwise on it,” he stated.
By the end of the year, 4.500 will be a more practical aim for the local note, according to Stephen Innes, managing partner of SPI Asset Management. This is due to the predicted US economic slowdown, which may happen in the fourth quarter (Q4) at a pace below 1%.
The slowdown was brought on by the Fed’s 75-basis-point hikes in interest rates last year.
According to Innes, the housing market is particularly affected by these rate increases since rising home prices and high borrowing costs make housing less affordable.
It is anticipated that the services sector of the US economy will suffer as households reduce their expenditure on dining out and vacation.
“While this slowdown may still be considered a soft landing, it aligns with the Fed’s goal of curbing inflation.”The steady decline in inflation, which had fallen from its four-decade peak of 9.1% year-over-year in the summer of 2022 to 3.0% in June, has been halted by the recent rise in oil prices to about US$90 per barrel.
“Services inflation is nevertheless persistent, indicating that the Fed’s two percent target is unlikely to be reached until early 2025. He stated in an interview with Business Times that the problem is that the Fed won’t likely start lowering rates until the end of 2024, at which point it would be prudent to sell the dollar.
The recent spike in the value of the dollar, he noted, has highlighted a number of global flaws that might potentially drive it much higher.
The US economy’s ability to withstand rising interest rates allows the US to offer investors relatively higher yields, making the dollar an appealing option. “Although the dollar may experience some headwinds and possible pullbacks, its overall potency may continue if the global economic rebalancing process fails to meet expectations,” says one of the most important factors influencing this trend.
“Therefore, we would need to see a lot more improvement in order to experience more balanced growth globally, starting with China and then catching up the slack in Europe. However, this might not happen until well into 2024 due to worries about inflation in Europe and the Chinese real estate market.
“Thus, while I do anticipate a slight weakening of the dollar, the sell-off could be mild until the Fed is compelled to reduce rates,” he stated.
