PETALING JAYA: Sentiment on the ringgit is likely to be cautious in the near term, as investors weigh the risks of more tariffs from the United States under the “Fair and Reciprocal Plan” to be announced on April 2 and the impact on the capital markets these additional tariffs could have.
All indicators point to volatility ahead for the ringgit, with a technical analyst saying that the currency’s consolidating trend since mid-December last year looks to be ending.
“The sideways trading phase looks ready to give way to a short-term downtrend and subsequently, point to a longer-term downtrend if it crosses 4.51 to the US dollar, which could mean a gradual return to the 4.79 level again,” he told StarBiz.
The last time the ringgit hit the 4.79 level was in late February and mid-April last year, when the currency hit lows not seen since the height of the 1997/1998 Asian financial crisis.
A March 14 report from Kenanga Research noted that the ringgit would likely stay defensive within the 4.43 to 4.47 levels, but could also test the 4.45 level as markets seek clarity.
The research house said a “higher-for-longer” stance on interest rates by the US Federal Reserve (Fed) together with a more cautious stance by the Bank of Japan, both of whom have separate key policy meetings from March 18 to March 19, could support a rebound of the greenback.
Meanwhile, optimism surrounding China, where equities have rallied since the beginning of the year driven by a compelling narrative surrounding artificial intelligence, technology and electric vehicles, and a brighter European outlook may weigh on the US dollar index.
Oversea-Chinese Banking Corp Ltd foreign exchange strategist Christopher Wong said markets would continue to be cautious as investors look ahead to the April 2 announcement on reciprocal tariffs.
“Risk of a broadening tariff war may potentially weigh on global growth, trade, undermine market sentiment and drag on the ringgit,” he said in an email reply.
“In the coming weeks, choppy moves in the 4.42 to 4.48 range are not ruled out.
“That said, the upper bound of the range can be threatened if the Fed meeting this week (tomorrow 2am announcement) comes in with a much more hawkish tone,” he said.
He added that in the near term, the cross-currents of interest rate policy, US tariffs and renewed optimism on China would influence the ringgit.
Wong said in the near term, the ringgit could be supported by markets unwinding the US exceptionalism trade (that is, investors being less confident of a robust US economy versus developed market peers) and at the same time becoming more confident of China on signs of improving economic activity and the rerating of tech stocks.
On that note, the ringgit could benefit from a strengthening yuan, given the close trading links between Malaysia and China.
“Domestic fundamentals remain sound, supported by robust macroeconomics, fiscal improvements, investment upcycle (special economic zones, data centres, etc), foreign direct investment inflows and relative domestic stability.
“This should also partially help to mitigate against external negativity,” he said.
Maybank Research said in a March 18 report that currencies face political risks and major central banks’ interest-rate decisions ahead.
“Currencies are exposed to two-way risks amid this period of consolidation and a large part of these risks are political in nature.
“The US dollar index has stabilised after a massive sell-off and concerns around US exceptionalism linger.
“The US dollar should continue to find some support against a backdrop of heightened uncertainty from US trade policies,” it pointed out.
It said Fed chairman Jerome Powell’s statement following the Fed’s meeting would be followed closely.
This is although the probability of an interest rate cut remains close to zero despite the latest data indicating softening in consumer price pressures.
The federal funds rate has been kept at the 4.25% to 4.5% range following three rate cuts totalling 100 basis points in 2024.
On the two-way risks, it said despite lingering concerns over US economic exceptionalism and the impact to sentiment from tariff announcements, the US dollar should see some support against a backdrop of uncertainty and the ebb and flow of US trade policy.
Maybank Research expects resistance for the US dollar index at 105.2, with support at 102.5.
The index closed at 103.4 on March 17.
It sees the ringgit’s resistance level at 4.46, before 4.52 and then 4.63.
The support level would be at 4.36, before 4.26.
