Analysts: Ringgit to get reprieve on weaker greenback

by **Cals** Mon 21 Sep 2015, 19:16

Analysts: Ringgit to get reprieve on weaker greenback

By Ahmad Naqib Idris / digitaledge Daily | September 21, 2015 : 10:08 AM MYT

KUALA LUMPUR: The ringgit is expected to get a temporary reprieve from its continued slide in value against the US dollar towards year end, analysts said, as the greenback is likely to weaken following the US Federal Reserve’s (Fed) decision to hold its interest rates last Thursday.

[size=16]Hong Leong Investment Bank Research (HLIB Research) has revised its forecast for the ringgit to end 2015 at 4.00 against the greenback, maintaining its forecast at 3.55 to 4.20 for the fourth quarter of 2015.

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The ringgit closed 1.34% higher at 4.1965 against the US dollar last Friday, according toBloomberg data.

“The revision of our forecast is backed by a combination of factors, including the Malaysian government’s announcement of economic measures, the stability in Bank Negara Malaysia’s reserves and the Fed’s dovish statement,” HLIB Research economist Sia Ket Ee said.

Sia sees the strength of the US dollar tapering in the short term, easing depreciation pressure on emerging-market currencies like the ringgit.

He also said the Federal Open Market Committee’s (FOMC) decision was broadly in line with market expectations, adding that the Fed is seen to be very cautious about raising rates to ensure growth momentum is not jeopardised.

Despite the postponement of the hike, Sia said the FOMC continued to uphold its rate hike intention crucial to maintain the attractiveness of US dollar-denominated assets.

“We now expect a rate hike in December, as there will be more clarity of the global economic condition after two to three months,” Sia added.

MIDF Research has also revised its ringgit forecast to between 4.10 and 4.20 against the US dollar for this year, based on the expectation that a correction will be made to both the stock and bond markets.

It does not see the global economy recovering this year, and expects no rate hike by the Fed in 2015.

“If the Fed is waiting for the global economy and the financial market to stabilise, a rate hike in 2015 is improbable.

“However, Fed chairwoman Janet Yellen did say that even a rate hike in October is still possible. In our opinion, the comment only increases uncertainty in the market, making volatility to continue further,” MIDF Research added.

It said the absence of a hike is positive for emerging economies, slowing down the capital outflow from these countries, including Malaysia.

FXTM chief market analyst Jameel Ahmad said the FOMC’s decision to delay the hike on global economic weakness had strongly weakened the possibility of an increase this year.

“Global growth concerns are a reoccurring theme as current suggestions strongly point towards economic momentum in China continuing to slow even further next year.

“Both the Bank of Japan and the European Central Bank are going to find themselves under increasing pressure to reinvigorate economic momentum, and the emerging markets remain vulnerable to further weakness,” he said.

Jameel noted that emerging-market currencies had failed to bounce as strongly, following the unchanged interest rates, which indicated that the depressed commodity prices and slowdown in China are the main dampeners on these currencies.

Meanwhile, Sia said the China factor had been largely priced in by the market, and would not have much impact on Malaysia.

“The previous instability was caused by the country’s move to devalue its currency to boost exports, hinting at a slowdown in its economy,” he said.

However, he noted that a statement by the Chinese government indicated that the country is vying for stability, as seen in its proactive measures to cut interest rates and talks of potential fiscal measures to stimulate economic growth.

This article first appeared in digitaledge Daily, on September 21, 2015.
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