Local currency forecast at RM4-RM4.10 against US dollar

Undervalued: StanChart’s Asean and South Asia FX research head Divya Devesh says the ringgit has been undervalued for years despite Malaysia’s strong economic fundamentals.

PETALING JAYA: After more than two years of decline against the US dollar, the ringgit is expected to strengthen to between RM4 and RM4.10 against the greenback this year, according to Standard Chartered.

The bank’s head of Asean and South Asia FX research Divya Devesh said that the ringgit has been undervalued for years despite Malaysia’s strong economic fundamentals.

“We are looking at a stronger ringgit this year along with other emerging economies as we turned more bearish on the US dollar.

“Note that the US dollar is trading at its 20-year high. We are bearish on the US dollar due to its twin deficits and the presidential election, ” he told reporters at a Standard Chartered Global Research Briefing 2020 yesterday.

Devesh said Malaysian external balances have improved in the past four years, which should reflect on the ringgit.

He pointed out that the quantitative easing announced by the Federal Reserve and the European Central Bank (ECB) would be a boon for assets in the emerging market.

“The ringgit could strengthen below RM4 per dollar should its exports numbers improved further, ” Devesh said.

Notably, for the last two years, the ringgit was one of the worst performing currencies in the region, declining more than 5% to trade as low as RM4.22 against the US dollar.

It was only at the end of 2019 that the ringgit reversed its performance. Over the last four weeks, the local currency has strengthened against the US dollar by 1.6% to trade at RM4.077 a dollar, driven by a rally in commodity prices, including crude oil and crude oil palm.

Meanwhile, Standard Chartered chief economist for Asean and South Asia Edward Lee expects Malaysia to maintain its economic growth of 4.5% this year.

He said the economic growth for this year will be driven by private consumption albeit slower pace compared to last year, as well as improvement in the global economy.

The global economy is expected to grow at 3.3% this year, faster than 3.1% it forecasted in 2019.

On the global front, Lee pointed out there have been signs that the risk in the global economy are receding, especially on the trade war between the US and China that had been concerns in the past two years.

“Trade war de-escalation, interest rates cut by central banks last year as well as pick-up in the electronics manufacturing would be the driver of global economic growth, ” he said.

Bank Negara is maintaining its GDP growth projection of between 4.3% and 4.8% for 2019. The central bank did not at this juncture made an official forecast for 2020.

Meanwhile, Bernama reported that OCBC Bank is expecting the Malaysian economy to grow at a slower pace between 4.2% and 4.4% for this year, albeit with an improvement in the ringgit against the US dollar.

The bank’s chief economist Selena Ling is targeting the ringgit to strengthen to RM4.04 against the greenback by end-2020.

She said the slower economic growth forecast was due to external factors, especially the unresolved US-China trade deal and geopolitical developments in the Middle East.

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