KUALA LUMPUR, Nov 1 — The ringgit may advance gradually to breach the psychological level of 4.0 against the US dollar as it has stabilised and formed a strong base at the current level, according to ForexTime (FXTM) Ltd.
FXTM Vice-President of Corporate Development and Market Research, Jameel Ahmad said the market had started to project the Malaysian currency to appreciate back to the level it used to be traded in 2015.
“I do believe the worst is over for the ringgit. Its outlook has been more optimistic moving forward.
“External factors, such as rebound in oil price and continuous weakening of the US dollar…that would be positive for the local economy and emerging currencies like the ringgit.
“Hypothetically, the best scenario for the ringgit would probably be around 3.80-3.90 range (against US dollar), and market expects it may happen in quarter two or quarter three next year,” he told Bernama.
Concerns on crude oil oversupply, which led the West Texas Intermediate (WTI) crude to breach below the key US$50 a barrel mark, has prompted selling momentum in emerging currencies of economies linked to crude exports, including the ringgit in the middle of 2015.
That happened at the exact same time as the appetite for the US dollar was picking up, with the Federal Reserve (Fed) interest rate rise in play.
The local note was traded at the 3.77 level per US dollar at end-June 2015, 2.80 per Singapore dollar, 3.08 against Japanese yen, 5.93 versus the British pound and 4.21 vis-a-vis the euro.
At current level, averaging 4.24 per US dollar, Jameel said he believed that the ringgit was undervalued and still oversold.
“With the Malaysian economy performing better than expected, and higher gross domestic product growth of around 5.0 per cent, that justify the ringgit to be traded at a better level,” he said, adding the ringgit was expected to gradually strengthen without much trading volatility at 4.30-4.15 range towards year-end.
Jameel who is also the Chief Market Analyst at FXTM also attributed the rebound in crude oil prices from its historic low, development in the United States (US) and the re-entry of foreign investor portfolios into Malaysia’s financial and capital markets as factors that helped in the consolidation of the ringgit’s value.
While the Fed’s normalisation and its interest rate hike expectation had been priced into the market, he said the US dollar had lost steam on lack of progress in US President Donald Trump’s policy execution.
He said markets are currently concerned about two factors—the US tax policy and who will be appointed as the next Chairperson of the Fed.
The market was seemingly pricing in that someone who is more hawkish would replace Janet Yellen, said Jameel.
On crude oil price, he said, there could be a possible rebound attempt to the US$60-US$65 a barrel mark next year and that would be positive to the emerging currencies of economies linked to crude exports, including the ringgit.
“When the ringgit recovers and strengthen significantly against the US dollar, it will also strengthen against other crosses. You will see stronger ringgit against Singapore dollar, Indonesian rupiah, and against other base currencies in Asia,” he said.
While the external factors could weigh more on investor sentiment with regards to the ringgit, Jameel cautioned that heightened geopolitical tensions would change the scenario of trading and forecast for the ringgit next year.
“If the geopolitical tensions escalate, market will see more demand for safe-haven assets,” he said, adding besides gold, the Japanese yen has now been performing as notable safe-haven currency during uncertainty, such as after the withdrawal of the United Kingdom from the European Union and after the 2016 US presidential election. — Bernama
Source: The Malay Mail Online