Fitch Research sees ringgit trading at average 4.25 to US$

KUALA LUMPUR:  Fitch Solutions Macro Research sees the ringgit weakening against the US dollar this year due to risks from the US-China trade tensions and is also slightly bearish over the longer term.

In its research note issued on Thursday, Fitch Research revised its average forecast for the ringgit this year to RM4.15/US$ from 4.05 previously, to reflect risks posed by the re-escalation of  trade tensions in May.

“We remain slightly bearish on the unit over the long-term and maintain our 2020 average forecast at 4.25/US$. The state of global trade relations will have a big impact on ringgit performance over the forecast period,” it said.

It said as with other emerging market (EM) currencies over Q2 2019 , the ringgit has seen increased fluctuations due to external events. 

The ringgit depreciated sharply following the tit-for-tat tariff hikes imposed by the US and China against each other in May to reach close to the key support level of 4.20 (but did not breach it) towards the end of May,  averaging 4.19 in the final week on a year-to-date basis. 

Fitch Research said however, the ringgit has strengthened since June, likely due to the dovish shift signalled by the US Federal Reserve in its communication and during the June FOMC meeting on June 19, to trade at  4.13 as of June 26 . 

“This bring s the year-to-date average exchange rate to 4 .12, which is weaker than our average forecast of 4.05 for 2019 . We believe the balance of risks over the coming months will remain tilted to the downside, and as such, we are revising our 2019 average forecast to 4.15 from 4.05 previously,” it said.

It also said  with support from oil prices, as its oil and gas team expects Brent crude prices to average US$70 a barrel in 2019 indicating potential upside from current level and year-to-date average at US$66.06  a barrel as of June 24 , could help to stabilise the ring git and prevent it from prolonged weakness beyond the support level of 4.20. 

Fitch Research also pointed out that despite the 14% retreat in oil prices in the s econd half of May amid demand concerns engendered by the slowing global economy, oil prices are likely to pick up given that Opec+ are likely to continue managing oil prices.

On its long-term outlook of six to two years, it maintained its slightly bearish long -term outlook on the ringg it and it still expect the ringgit to average 4.25/US$ in 2020.

“The ringgit is still likely to trade within the long-term range between 3.80 /US$ and 4.50/US$ over the coming quarters . The key support of RM4.50/US$ has never been meaning fully broken, while the RM3.8 0/US$ resistance has held since August 2015,” it said.

Fitch Research also cautioned that risk sentiment could remain weak amid heightened US-China trade tensions , which is likely to be unfavourable for emerging markets (EM) compared to developed markets (DM). 


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