The ringgit advanced about 0.2 percent to 3.998 to the dollar, breaking the psychologically significant 4 level
KUALALUMPUR: AmBank Economics Research expects the ringgit to strengthen further in 2018, underpinned by the improving macro fundamentals and fiscal position.
It said on Thursday that other factors are the healthy consumer and business sentiments, potential normalisation of the policy rate and its undervaluation to pave the way for the currency to further catch up.
“Besides, with an undervalued ringgit – our fundamental analysis shows a fair value of 3.95 while the real effective exchange rate presents a fair value of 3.76 – there is still plenty of room for this laggard currency to gain momentum.
“We expect Bank Negara Malaysian to consider reviewing its current monetary policy by factoring in a 25bps rate hike in January 2018 from its current rate of 3% with rates expected to normalise at 3.50%,” it said.
On the external front, AmResearch said the positive global GDP outlook in 2018 implies prospects for a pickup in investment are getting brighter despite some levels of pronounced risk.
It said looking at the currency markets, it believes local factors will be key drivers in 2018. In particular, it feels these will centre around investment as business confidence, corporate profitability, manufacturing performance and capex are on the rise, providing a better feel of the business cycle and investment trend.
As for the Euro/US dollar in 2018, it will likely be dominated by normalisation of the conventional policy in which it expects the European Central Bank to end its quantitative easing by September 2018.
On the interest rate hikes, it foresees two hikes starting in 2019 by 25bps each in 1H and 2H.
The pound sterling /US$ will very much depend on the outcome of the Brexit negotiations apart from the potential incoming macro data and the direction of the monetary policy.
AmResearch said the yen will be influenced by yield spreads against the US dollar where it is seeing three rate hikes by the US Fed in 2018.
“That will add some downwards pressure on the yen besides expecting the Bank of Japan to maintain its current accommodative monetary policy that should see continuous capital outflow. However, the risk aversion momentum should mitigate the downside risk,” it said.
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