PETALING JAYA: The ringgit’s upward trend is expected to continue till year-end, increasing the likelihood of it breaching the RM4.00 to US$1 psychological mark sooner rather than later after it broke the 4.20 level last Friday, said Sunway University Business School Professor of Economics Prof Dr Yeah Kim Leng.
“The ringgit’s performance is in line with Malaysia’s strengthening economy and also some under valuation of the currency. I see it inching towards fair value,” he told SunBiz.
Yeah, who expects the ringgit to settle at RM4.10 to RM4.20 at year-end, said the currency could possibly retrace quickly if positive factors remain.
The ringgit, which saw a huge appreciation last week, broke the 4.20 level to RM4.1960 against the US dollar as at 5pm last Friday with a 0.34% gain, reaching the highest level in the past 10 months. Year to date, the ringgit has risen 6.48% against the greenback.
Yeah said the ringgit’s current performance is due to improving fundamentals and a surge in exports.
“There was also a slight widening of the current account surplus and rising foreign reserves, which stood at US$100.5 billion as at end of August. More importantly, there has been sustained strength in global demand where major economies are showing firmer growth. I expect Malaysia’s exports to sustain their current strength,” he added.
Yeah said the Purchasing Managers’ Index suggests that global demand is likely to continue growing while China has been performing above expectations with higher imports from the rest of Asia, including Malaysia, which saw higher exports to China.
He said the ringgit, which suffered a major correction in 2015 when oil prices plunged, should be retracing some of its undervaluation and expects the currency to continue improving as long as the economy performs well.
However, Yeah cautioned that currency forecasts are subject to margins of error and conditions can change, depending on global events.
“There could be knee-jerk reactions to geopolitical events, for example the North Korea problems. These events could result in flight to safety and easily derail the currency’s performance,” he said.
Meanwhile, Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew said the main reason for the ringgit’s strengthening is the general weakness of the US dollar, which is the same factor behind the performance of other Asian currencies.
“The US dollar has been weakening for one to two months already and the Euro has been strengthening against the US dollar in a major way. The European Central Bank’s QE (ECB’s quantitative easing) programme has kept the euro weak but it is now approaching the end of the QE programme. The programme is supposed to end at year-end and with about three months left till year-end, the euro is strengthening,” he said.
Pong said most Asian currencies are tracking the middle path between US dollar and euro, and are expected to weaken against the euro but strengthen against the US dollar.
“The euro will keep strengthening against the US dollar and Asian currencies will follow suit. However, the European Central Bank is expected to have one more meeting in October and it will be one more opportunity for them to say whether they will continue with the QE programme,” he said.
Pong declined to give a projection of the ringgit’s performance for the rest of the year, saying that it would depend on the outcome of the ECB’s meeting next month.
Source: The Sun Daily