PETALING JAYA: The ringgit’s pullback to the RM4 level against the US dollar appears overdone, with analysts saying the recent weakness is being driven more by a bout of global risk aversion than by any serious deterioration in fundamentals.
Similarly, the ringgit’s weaker showing against the Singapore dollar (SGD) reflects the same risk-off dynamics, as investors rotate into safe-haven currencies amid heightened geopolitical uncertainty.
After strengthening from RM3.16 in mid-January to RM3.06 by mid-March, the ringgit looks to be giving up those gains against the SGD, easing to around RM3.12 yesterday.
iFAST Capital research analyst Kevin Khaw Khai Sheng said the current US dollar-ringgit level is “more or less” in line with expectations but added that the currency pair appears oversold.
“Our earlier thesis on the ringgit’s appreciation, that it is driven by structural, domestic factors, remains intact.
“Currently, the ringgit’s depreciation is mainly due to macro developments like the US-Iran war.
“Elevated oil prices can also be supportive for Malaysia. Hence, I do not see it as a major risk to cause the ringgit to depreciate further,” he told StarBiz.
Khaw said the ringgit’s support level against the greenback is 4.08 to 4.09 from a technical standpoint, while the room for further depreciation is “quite limited” fundamentally speaking.
He expects about 10 to 20 basis points of further depreciation in the ringgit against the US dollar.
“We are likely in the mid-stage or ideally already at the late stage of the conflict.
“The focus now is how the United States will resolve the situation.
“We project that the war will remain in this phase for a long time.
“Even if an agreement is reached between the United States and Iran, it is unlikely to be a full resolution, and uncertainties could still persist, keeping the ringgit under pressure in the near term.
“However, once the situation is resolved, potentially by the second half of the year, and the key catalysts for the ringgit kick in, it could be quite a boon for the ringgit against the US dollar,” Khaw said, maintaining his US dollar/ringgit projection of 3.90 to 4.00 by the end of the year.
CP Global Fintech Solutions chief investment officer William Yii said granted, the current ringgit correction was timely triggered by the Iran war driving risk-off flows into the US dollar as a safe haven trade, it could be deemed as a temporary phenomenon, assuming the Iran war is not a protracted one.
“On a medium-term horizon, the ringgit’s strength will continue to be underpinned by Malaysia’s macro fundamentals and its interest rate differential versus the US Federal Reserve (Fed) funds rate.
“On the other hand, the global inflationary trajectory associated with the Iran war has the potential to push the Fed to become more hawkish in the coming quarters,” he said.
He also added that the net investment flows into Malaysia from foreign institutions or repatriation of government-linked companies’ investment back to local fixed income and equity market is another factor dictating the ringgit’s strength versus the US dollar and other regional currencies.
Yii said the correction of the ringgit versus the SGD reflects a regional safe haven trade flowing into the SGD.
Looking ahead, he expects the ringgit to remain under pressure against the SGD.
“In fact, as Dubai’s ‘physical safe haven’ is currently challenged by the war in Iran, I opined that significant family offices’ assets under management could be flowing into Singapore for good.
“If that is truly the case, we can expect the SGD to maintain a firmer ground versus the ringgit going forward,” he said.
According to Yii, the safe haven trade may continue to dictate the ringgit’s weakness in the short-term.
He added that although the ringgit looks “a tad oversold” technically, the US dollar may have further room to strengthen to 4.11 which is the immediate big technical resistance level.
“Barring an interim oversold rebound in the ringgit, the US dollar/ringgit could potentially test the 4.11 technically big resistance level by May,” he said.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid is also of the view that the ringgit’s slide is a temporary phenomenon.
He said the US dollar/ringgit and SGD/ringgit outlook still revolves around how soon de-escalation can happen in Iran, and thus far prospects for a ceasefire look dim.
