PETALING JAYA: The ringgit’s five-week rally against the US dollar recently has brought the exchange rate close to breaching the RM4.10-mark per US dollar.
However, the ringgit’s performance against the greenback is set to end 2019 on a rather flattish note. The good news is, with the new decade on the horizon, market pundits predict a better year for the Malaysian currency in 2020.
Despite the projected improvement, the psychological-mark of RM4 per US dollar may still be tough to achieve next year, with the “new normal” exchange rate likely to be closer to RM4.10.
Year-to-date until Dec 30, the ringgit has marginally appreciated against the greenback by 0.65%, in comparison to the disappointing 2.84% decline in 2018.
The ringgit was traded at RM4.1070 per US dollar yesterday, well below the year-to-date peak of RM4.2203 on Sept 3.
An analysis by StarBiz involving 11 other major currencies showed that the ringgit has also appreciated against five other legal tenders namely, euro, Chinese yuan, Australian dollar, Indian rupee and South Korean won.
The Japanese yen-ringgit exchange rate was rather flattish, while the Malaysian currency has depreciated against British pound, Singapore dollar, Indonesian rupiah, Thai baht and Philippine peso.
The ringgit has shown strength in recent weeks, as a result of the positive development seen in the US-China trade talks and uptrend in commodity prices such as Brent grade crude oil and crude palm oil (CPO).
For context, prices of Brent oil and CPO surged above US$65 per barrel and RM3,000 per metric tonne last week.
In addition to these factors, TA Securities Research expects the ringgit to be supported by the Federal Reserve’s dovish bias and Malaysia’s favourable bond yield differential with the US, Malaysia’s sustained current account surplus, potential net foreign inflow as well as continued inflow of foreign direct investments.
It forecasts the ringgit to average RM4.10 per US dollar in 2020.
MIDF Research stated in a note yesterday that it expects the ringgit to average at RM4.18 and hit RM4.20 by end-2020.
Meanwhile, AmBank Group Research expects an average of RM4.12 next year.
“A play on the ringgit, will be driven by events such as FTSE Russell retaining Malaysia in the World Government Bond Index during its next half-yearly review in March 2020, a steep rise in crude oil prices and an end to the easing cycle with only another 25 basis points cut in the overnight policy rate by Bank Negara in 2020,” it said in a Dec 12 note.
In a reply to StarBiz, FXTM market analyst Han Tan believes the ringgit would have a strengthening bias against the US dollar, provided that risk appetite is held up by meaningful signs of a global economic recovery in 2020.
“FTSE Russell’s pending decision on Malaysian bonds, however, continues to act as a dampener on the ringgit, as it adds another layer of uncertainty for investors to contend with, while net outflows of foreign funds from the domestic equity markets would weigh on the local currency,” Tan said.
For context, the stock market indices provider FTSE Russell has put Malaysian bonds on its World Government Bond Index (WGBI) watch list, with the next review due in March 2020.
An exclusion of Malaysian bonds from the WGBI could lead to foreign fund outflows, which AmInvestment Bank Research has previously expected at US$8bil (RM33.6bil).
“Global oil prices should continue to hold sway over the ringgit’s performance for the year ahead, as oil-related revenue remains a significant contributor to Malaysia’s fiscal spending plans.
“US dollar-ringgit is forecast to average around the 4.13 level for the first quarter, before potentially testing the 4.05 - 4.00 support range by year-end in the event that the global economy can stage a better-than-expected recovery that pushes risk-on mode onto higher plains, said Tan.
Commenting on the potential impact due to WGBI exclusion, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told StarBiz that the ringgit may not depreciate excessively.
“There could be a knee jerk reaction should Malaysia be removed from the index. However, there are other competing indexes that would use methodology and Malaysia is still in it.
“Apart from that, Malaysia’s sovereign credit rating remained steady at A-/A3 with stable outlook and the credit default swap spread remained very low at 35 basis points. So foreign investors are very receptive to Malaysian govt bonds,” he said.
On the ringgit outlook, Mohd Afzanizam was slightly more bearish than his peers, predicting the ringgit to weaken to an average of RM4.25 per US dollar in 2020.
However, he said that there are chances for the ringgit to maintain its current uptrend into 2020.
“This will be contingent upon the US-China trade war situation whether the de-escalation would continue,” he said.