Analysts: Ringgit to continue to weaken in 1H14

by **Cals** Mon 06 Jan 2014, 14:43

Business & Markets 2013

Written by Charlotte Chong of theedgemalaysia.com

Monday, 06 January 2014 10:32

KUALA LUMPUR: The ringgit is expected to continue to weaken against the greenback especially in the first half of the year amid positive economic data in the United States, coupled with the Federal Reserve’s tapering of its stimulus programme.

RHB Research head of research Lim Chee Sing told The Edge Financial Daily that the local currency will hover between 3.25 and 3.30 against the US dollar from the current levels of 3.26 to 3.28 due to the outflow of capital.

Last year the US dollar strengthened by 7.51% to end at 3.2757 against the ringgit on Dec 31 from 3.0468 in January.

The local currency further weakened to 3.2928 to one US dollar last Friday.

“The outflow of the funds would be gradual,” said Lim, adding that the year-end target for US dollar against the local currency would be at 3.15.

Echoing Lim’s view was United Overseas Bank Ltd economist Francis Tan.

Tan said in an email that by the end of first quarter this year, the research house expects the US dollar to be at 3.25 against the ringgit.

He said that the trajectory would continue and the ringgit will end 2014 at 3.38 versus the US dollar.

Tan said while the movement of the US dollar is largely due to the Fed’s tapering of quantitative easing (QE), individual countries would have their own distinct dynamics against the greenback.

This, he said, is due to the differential rates of growth and inflation, trade and budget balances, portfolio fund flows, consumer and investor sentiments, and interest rates.

“As such, catalysts for a stronger ringgit may include better export growth (persistent trade surpluses), higher levels of foreign direct investments into Malaysia, and signals from the government that there will be further fiscal consolidation efforts.

“In fact, we are forecasting that Malaysia’s current account (as a percentage of gross domestic product) will go higher from 3% in 2013 to 4.5% in 2014. This will be supportive of the ringgit,” added the Singapore-based economist.

Meanwhile, MIDF Research chief economist Maslynnawati Ahmad said he expects the ringgit to weaken to 3.3 to 3.4 but bad emerging market performance may cause the local currency to further weaken to 3.4 to 3.5.

“However, we expect as the dust settles, as we move further into 2014, and as the impact of fiscal belt tightening measures show better fiscal numbers, the ringgit may see some room to rebound in the second half of 2014 [2H14],” she said via email.

Maslynnawati said while the ringgit may weaken against major currencies with the exception of the yen, the local currency is expected to perform stronger against other regional currencies, in particular rupiah, Indian rupee, and baht.

“Our year-end target for US-ringgit now would be 3.2 to 3.25,” she added.

Maslynnawati warns that the ringgit may face further downward pressure against the US dollar and euro in the run-up to the Fed’s QE taper, with the quantum likely to be bigger if the sentiments on emerging markets continue to be bearish.

This article first appeared in The Edge Financial Daily, on January 06, 2014.