Ringgit set to strengthen against US dollar in 2024


Maybank regional head, forex research and strategy, global markets, Saktiandi Supaat

PETALING JAYA: There is strong potential for the ringgit to strengthen against the US dollar by next year although the first quarter of 2024 (1Q24) could still see some elevation in the US dollar-ringgit exchange rate owing to existing high United States interest rates and slower economic recovery in China.

Saktiandi Supaat, who is the forex research head at Malayan Banking based in Singapore, told StarBiz he expects the ringgit to strengthen against the US dollar in 2024

But due to the prevailing high US rates as the Federal Reserve (Fed) pauses rate hikes, it should keep the US dollar-ringgit exchange rate elevated until the end of 1Q24 before moderating subsequently.

He projects the ringgit to remain flattish at US$4.70 in 1Q24, the same value as in 4Q23, before gaining strength for the remainder of next year.

“However, speculation of a rate cut by the Fed emerging in 2Q 2024 with an eventual materialisation in the second half of next year should lead to the strengthening of the ringgit.

“Notwithstanding, we do note that a weaker-than-expected China economic recovery could limit the local currency’s gains,” he added.

Saktiandi is keeping his forecast for the ringgit to trade at RM4.40 to the US dollar by end of next year.

As at press time, the ringgit was trading at RM4.69 against the greenback.

Juwai IQI global chief economist Shan SaeedJuwai IQI global chief economist Shan Saeed

Juwai IQI global chief economist Shan Saeed said the ringgit is likely to trade between 4.29 and 4.49 against the US dollar by end of 2023 based on the premise that the Fed would continue to hit the pause button at the Federal Open Market Committee (FOMC) final year meeting on December 12-13.

He said the Dollar index has depreciated 2% in the last 23 days, adding that for next year, he anticipates the ringgit to meander around 4.17 to 4.44 against the greenback.

Shan premised the strengthening of the local currency to, among others, higher oil prices which would drive the ringgit higher against the US dollar, noting that he expects oil prices to trade between US$91 and US$147 per barrel in 2024.

Apart from this, he expects foreign direct investment (FDI) inflows into the country from China, Singapore, Europe and the United States due to stronger GDP growth in Asean countries.

Shan is upbeat that the local tourism sector would thrive and see more Chinese tourists flocking into the country, and higher trade and commerce activities in Malaysia is set to get a boost which bodes well for the ringgit as such activities would spur the domestic economy, he said.

Meanwhile, UCSI University Malaysia assistant professor in finance Liew Chee Yoong, who is also a research fellow at the Centre for Market Education, anticipates the ringgit to strengthen slightly against the US dollar until the end 2023, given the improvement of the situation in the Middle East with the truce occurring between Israel and Hamas.

However, he said the local currency may depreciate if the country encounters a severe negative external macroeconomic shock like the sudden worsening of the Middle East situation, etc.

It is important to understand that Malaysia is ranked very low by Global Financial Integrity (GFI) and hence, any severe negative external macroeconomic shocks would likely lead to substantial financial capital outflows from the country to safe haven investments or elsewhere, leading to a substantial depreciation of the in the short run.

“On the other hand, the outlook for 2024 is less clear. If global conditions are favourable, there might be a chance for the ringgit to strengthen against the US dollar. However, if severe negative external macroeconomic shocks affect the country, the ringgit may depreciate further against the greenback,” he said.

UCSI University Malaysia assistant professor in finance Liew Chee YoongUCSI University Malaysia assistant professor in finance Liew Chee Yoong

Liew said the local currency’s strength in 2024 are influenced by the local economic policies, trade balances, and global economic conditions.

Given the current huge government budget (i.e. third largest in Malaysian history) and huge public debt (i.e. 80% of gross domestic product (GDP)), it is unlikely the ringgit may strengthen against the greenback even though exports are expected to recover in early 2024 post Covid-19.

In terms of regional currencies, he said the Singapore dollar is likely to strengthen against the ringgit if there is a severe negative external macroeconomic shock affecting the South-East Asian region as the island republic is considered an alternative safe haven investment.

This is because it is perceived by investors and businesses that the “Singapore system” works better compared to other countries in the region, Liew added.

Saktiandi, however, expects the Singapore dollar to trace downwards throughout 2024 as the ringgit has a tendency to outperform the former in a more positive external environment of a softening Fed stance.

A decline in US interest rates, leading to an improving risk environment, tends to favour flows into the prior stressed emerging markets currencies such as the ringgit over the more resilient Singapore dollar.

He said the Japanese Yen- ringgit exchange rate should stay at rather low levels into the end of 1Q24 as the Fed persists in holding rates high.

However, he said a change in the Fed versus Bank of Japan’s (BOJ) monetary cycle with the former likely to cut rates in the second half of 2024 and the BOJ turning neutral in 2Q24 (exit of negative interest rate policy and yield curve control), should guide for a stronger Yen. The Yen hence should outperform the ringgit further into the year, leading to a higher yen-ringgit exchange rate.

As for the ringgit-Yuan exchange rate, he said the ringgit is likely to strengthen against the Yuan moving into 2024 with the local currency getting a lift from the Fed’s softening interest rates stance (in the second half of 2024) whilst the Yuan in contrast is likely to underperform in comparison.

The Chinese currency would likely be weighed down by a consumption recovery leading to more tourism outflow, which would be negative for China’s current account position. Additionally, the United States presidential elections could result in stronger hawkish rhetoric against China and hurt sentiment towards China assets and the Yuan, Saktiandi noted.

End.

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