PETALING JAYA: The ringgit, rattled by the strengthening US dollar, is seeing further turbulence following a surprise attack by Hamas on Israel over the weekend.
At 6pm yesterday, the ringgit weakened to 4.7295 against the dollar from last Friday’s close of 4.7115.
Seen as a safe haven in times of heightened uncertainty, the greenback advanced 0.2% compared with the euro and the pound, Bloomberg reported.
The Australian and New Zealand dollars have weakened while the Norwegian krone was the best-performing major currency.Speaking to StarBiz, SPI Asset Management managing director Stephen Innes said there were three channels for a possible ringgit upswing. The first being the recovery of the Chinese market sentiment.“While foreign money has been leaving China due to a sinking property market, we have started to see economic data moderating; a positive step forward could be the inflation and trade data released on Friday, where improvements are expected on both. However, the latest data from China suggests more policy work needs to be done.”While the tabling of Budget 2024 this week could provide some relief for the local unit, he said the budget would need to be pro-growth and fiscal-oriented.
He added that the next key resistance level for the ringgit is RM4.75 while support remains at RM4.70.
“The second channel would be an upswing in the European economic data, which would influence broader dollar moves given the euro holds sway.
“The last support for the ringgit would be weaker US economic data that could take some of the stings out of the dollar’s safe-haven appeal by shifting US yields lower.
“However, with the US Federal Reserve (Fed) still in higher for more extended mode, a weaker dollar circle is still challenging,” he said.
Innes said while traders buy dollars and safe haven assets like gold amid the Hamas-Israel conflict, the trends would subside once sentiment stabilises.
“Markets are in a wait-and-see mode to better understand if there are other political actors involved like Iran. If yes, we could see a broader escalation and more demand for safe haven dollars,” he said.
Kenanga Research pointed out that while Israel and Palestine are not key producers of oil and other key commodities, they are at the doorstep of the Middle East, which is a major oil producing region in the world.
As such, an escalation of the war could potentially disrupt the production or transportation of oil out of the region.
The research house said the perception of a heightened geo-political tension is sufficient to keep oil prices high, adding inflationary pressure to the global economy.
Innes said while rising oil prices would support the local economy since Malaysia is an exporter, the higher prices could push global yields higher due to inflation concerns and hurt the local currency market.
“The Middle East’s contribution to global gross domestic product is a scant 4% but its influence on the world stage is oil. At this point, there is no threat to the Middle East’s oil supply. Until there is, I suspect safe-haven dollar demand eases.”
Meanwhile, Rakuten Trade head of equity sales Vincent Lau said the ringgit’s support amid the escalating tensions in the Middle East is more domestic-focused with Budget 2024 and the RM40.6bil of committed investments that were generated as a result of Prime Minister Datuk Seri Anwar Ibrahim’s visit to the United Arab Emirates.
“We are observing a relatively muted response in the market from the Hamas-Israel conflict. We were anticipating a pre-budget rally, but now, with the Middle East conflict, we will have to see how it unfolds.
“We are hoping for more clarity from Budget 2024 on the fiscal side, especially considering the current global uncertainty stemming from the conflict,” he said.
Lau said the Fed is unlikely to introduce another rate hike and this will thwart the strengthening of the US dollar.
“When there is no more rate hike from the Fed, our ringgit may slowly find its way back to the levels of RM4.50 to RM4.60.
“This may be by the end of the year,” he said.
Prof Yeah Kim Leng, who is one of the finance advisers to Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim, said US-elevated interest rates, coupled with high corporate and government debts, may cause a hard rather than soft landing of the economy in 2024.
He noted that should that materialise, the strong dollar will reverse course.
Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said that at the moment, the dollar/ringgit is lingering slightly lower than the immediate resistance level of RM4.7495.
