Ringgit to remain cheap in first half of this year

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Ringgit still expected to weaken along with most Asian currencies against the US dollar, but analysts now see it falling to 4.46, instead of 4.55 (earlier predictions).

At 4.46 per US dollar by mid-year according to a Bloomberg survey, it will boost foreign interest in bonds, which will be cheaper for them to invest in, while the ringgit is still dirt cheap.

“But, even though the ringgit has continued to trend slightly higher against the Dollar as we approach the end of the trading week, the emerging market currencies might have been provided a helping hand following downbeat comments from US President Donald Trump around USD strength,” said Jameel Ahmad, Vice President of Corporate Development and Market Research at FXTM.

Jameel said it appeared that Donald Trump made several U-turns when it comes to US economic policy and while the main headline attraction was his reversal in previous claims over China being an FX manipulator, President Trump also repeated concerns over USD strength and even more surprisingly supported the need for lower US interest rates.

Moving ahead, it will be important to monitor whether investors now begin scaling back their Dollar positions and expectations over further US interest rate increases until the end of 2017.

“A combination of these factors would be seen as supportive for the Malaysian Ringgit,” said Jameel.

The ringgit exchange rate was at 4.4202 at 3.45pm in Kuala Lumpur yesterday. It was trading at 3.17 against the Singdollar.

The ringgit has been the worst performer among Asian currencies in the past six months, losing 4.6 per cent, as the election of US President Donald Trump in November and rising US interest rates saw investors take money out of the most liquid emerging markets, said Bloomberg.

While still expecting the ringgit to weaken along with most Asian currencies against the dollar, analysts have boosted forecasts for three straight months.

Malaysia’s central bank responded to the ringgit’s slump in November by clamping down on the trading of offshore non-deliverable forwards.

That had the effect of stemming declines, but also dampened interest from overseas investors, as they found it harder to hedge their positions in the country’s assets.

Global funds cut holdings of ringgit bonds to a five-year low in March, Bloomberg reported.