KUALA LUMPUR: The ringgit extended its downtrend to open lower against the stronger US dollar today on cautious sentiment over a potential interest rate hike in the US, as well as Federal Reserve's (Fed) latest quarterly forecast, a dealer said.
At 9 am, the local currency slipped to 4.4220/4245 versus the greenback from Monday's close of 4.4170/4185.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the US Dollar Index (DXY) rose to 105.078 points, the highest since 2002.
He said the US dollar remained the highly sought after currency since last Friday after the May consumer price index (CPI) came in higher than expected.
"The economic projection made during the Fed's March meeting saw the Fed Fund Rate forecast for 2022 was revised from 0.9 per cent to 1.9 per cent.
"For 2023, the benchmark rate forecast would be at 2.8 per cent from the previous estimates of 1.6 per cent and similarly, for 2024, the Fed Fund Rate projection would be at 2.8 per cent from 2.1 per cent previously," he told Bernama.
Mohd Afzanizam said in a way, the neutral rate -- a rate that is neither contractionary nor expansionary -- lies within 2.5 per cent to 3.0 per cent.
"We believe the Fed would not want to contract economic activities but rather strive to ensure the economy undergoes a soft landing as keeping the right balance between sustainable inflation rate and growth is a delicate business.
"Perhaps, at some point this year, they may want to pause their rate hike campaign as monetary policy responses (interest rate hike) work in a certain lag, typically around 18 months or so before it will be felt in the economy," he said.
The US Federal Open Market Committee (FOMC) members will deliberate on their decision at their two-day meeting beginning Tuesday.
Meanwhile, the ringgit was traded mostly higher against a basket of major currencies.
The local note rose against the British pound to 5.3754/3784 from Monday’s close of 5.3892/3910, strengthened versus the Singapore dollar to 3.1742/1765 from 3.1770/1783, and increased vis-a-vis the euro to 4.6091/6117 from 4.6211/6226, previously.
However, it fell against the Japanese yen to 3.2963/2984 from 3.2830/2844 yesterday. - Bernama
