Ringgit getting stronger

Currency may strengthen to 3.85 level to US dollar

PETALING JAYA: After strengthening by 9% against the US dollar in the past nine months, the ringgit is about to get stronger.

There are chances, according to analysts, for the currency to return to below the exchange rate of 4.00 against the greenback, going into 2021.

In a reply to StarBiz, FXTM market analyst Han Tan said the ringgit may strengthen to the 3.85 level per US dollar in the first half of next year.

He pointed out that the US dollar-ringgit exchange rate could test the same technical support region as it did in 2018 and 2016.

“Such a scenario is contingent on several factors, including an extended weaker dollar environment – with the dollar index hitting the 88 level – and a sustained recovery in oil prices to pre-pandemic levels.

“The global economic recovery is also a necessary platform for riskier assets to climb higher in the year ahead, ” he said.

Tan added that should the ongoing risk-on narrative in the markets be derailed, it could dampen the broader demand for emerging-market assets.

After losing steam since April 2018, the ringgit has stayed above the 4.00 level against the US dollar for the entire 2019.

The local currency’s performance took a further beating following the Covid-19 outbreak, weakening the ringgit to the 4.44 level against the US dollar on March 23.

However, the ringgit has since appreciated gradually and was traded at about 4.05 against the US dollar at press time.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said the prospects of a better economic recovery, both globally and in Malaysia, are expected to buoy positive sentiment on the ringgit outlook in 2021.

“From the yield perspective, the prolonged ultra-low US interest rate environment and a modest depreciation of the US dollar as the US economy proceeds bodes well for emerging currencies, including the ringgit.

“The normalisation of Bank Negara’s overnight policy rate remains a wild card.

“But, there are flashpoints that could temper the ringgit outlook and these include a delay in economic recovery due to uncontrolled virus infection, political uncertainties and possibly a general election as well as the sovereign re-rating risk, ” he said.

Lee forecast the ringgit to average between RM4 and RM4.05 per US dollar by end-2021, with the upside potential to between RM3.95 and RM4.00 per US dollar.

Meanwhile, Kenanga Research said that the US dollar’s both short-term and long-term outlook appear to be bearish, signalling the potential for the ringgit to appreciate further against the greenback.

The research house said in a note that the US dollar-ringgit exchange rate may touch 3.979 by the third quarter of 2021, as compared to 4.069 by end-2020.

As for the ringgit’s outlook this week, based on its fundamental analysis, Kenanga Research expects the local currency to weaken further against the greenback following a 0.51% week-on-week (w-o-w) depreciation last week.

“The ringgit may trade marginally lower this week on the back of a stalled US Covid-19 aid and spending package (of US$2.3 trillion in value), a threat of a partial US government shutdown and worries over Covid-19 variants, ” it said.

Last week, apart from the US dollar, the ringgit also weakened against other major currencies. It fell 0.16% w-o-w against the euro, 0.39% against the Japanese yen, 0.65% against the Australian dollar and 0.79% against the pound sterling.