Economists see Malaysian ringgit to remain under pressure against USD in second half

KUALA LUMPUR - Economists have foreseen the Malaysian ringgit, one of the biggest losers in the first half, to remain under pressure against the U.S. dollar in the second half amid aggressive interest rate hikes by the U.S. Federal Reserve (Fed).

Hong Leong Investment Bank Research said in its recent report that it expects the ringgit to have an overall depreciation trend in the second half with an average of USD-MYR 4.67 to reach a 2023 average of 4.56 and year-end target of 4.40.

According to the research house, the ringgit has weakened year to date, due to risk-off sentiment following continued interest rate hikes by the U.S. Federal Reserve, albeit at a gradually reduced pace.

Ongoing developments in global financial markets, including the banking crises in the West and the United States debt ceiling drama, have also dampened market sentiment and resulted in an increase in outflows from most emerging market economies into safe-haven assets such as the dollar as investors seek to protect their investments, it said.

In the third quarter, Hong Leong expects the ringgit to continue its depreciation trend as a global tightening campaign continues in the U.S. and advanced economies to stem inflationary pressures.

As entering the fourth quarter, it anticipated ringgit to have a slight appreciation bias against the background of moderating inflation, cooling labor market and further clarity on the domestic political scene as Malaysia moves past the state elections.

MIDF Research has also revised lower its MYR average expectation to MYR 4.43 per USD and year-end at MYR 4.20.

According to the research house, aggressive interest rate hikes by the Fed since early 2022 have been the main factor behind the strong U.S. dollar.

"We expect that MYR will stay on a depreciation path as the Fed keeps on delaying its interest rate pause," said MIDF.

However, fundamentally, it said the ringgit is in a good position to strengthen as the domestic economy stays on upbeat momentum and as a net commodity exporter (of crude petroleum, liquefied natural gas and palm oil), ringgit stands to gain from the elevated global commodity prices and sustained trade surplus.

Thus, it believed the strengthening of MYR will return and regain once the Fed hit the pause button and the earliest is the fourth quarter of this year.

Meanwhile, Public Investment Bank anticipated the ringgit to average around MYR 4.45-4.50 per USD by the end of 2023, compared to its previous projection of MYR 4.30-4.35 per USD, barring any significant and unforeseen capital inflows into Malaysia's assets.

The research house anticipated a narrowing surplus in the goods account for Malaysia, reflecting decelerating demand from major trading partners.

Its forecast for Malaysia's current account has been revised to a lower level of 1.2 percent of 2023 gross domestic product.

RHB Research also remained cautious about the ringgit and expected the currency's continued under-performance against the U.S. dollar and most Southeast Asian currencies.

According to the research house, the risks are building that USD/MYR could trade in the 4.70 to 4.90 range in the second half.

It noted that domestic sentiment for holding the ringgit is deteriorating rapidly and is reflected in multiyear lows in trading volumes in the domestic stock market and foreign exchange deposits in the domestic banking system remain elevated.

The Malaysian ringgit, which has fallen 5.9 percent against the dollar in the first half, is seen as one of the biggest losers.

Earlier on Tuesday, Bank Negara Malaysia (BNM) said the central bank will intervene in the foreign exchange market to stem currency movements that are deemed excessive. - XINHUA