KUALA LUMPUR – The ringgit is anticipated to continue to slide against the US dollar next week as global economic uncertainty contributes to volatility in the emerging currency market, including the ringgit.
Mohd Afzanizam Abdul Rashid, chief economist and social finance head at Bank Muamalat Malaysia Bhd, emphasised that the surprise 50 basis point hike by the Bank of England, as well as a hawkish stance by the United States Federal Reserve (Fed), would persist for the time being.
“We believe this narrative will continue to hog the limelight next week. Having said that, monetary policy works in a lag, meaning at some point, the aggressive monetary tightening will slow economic growth as the cost of borrowings has substantially increased while liquidity has become scanty,” he said.
Afzanizam added that while the Fed and other central banks will eventually change their stance, developing market currencies will remain volatile until that time.
“The current support and resistance levels are at RM4.6257 and RM4.7495, and I suppose it’s probably going to be around RM4.66 to RM4.67,” he added.
He said the market would begin to consider the potential impact of tight monetary policy, causing risk aversion and, as a result, strong support for the US dollar.
The ringgit was weaker for five consecutive days of the week just ended as US Fed chair Jerome Powell’s testimony before the House Financial Services Committee on combating US inflation hints at raising interest rates.
Kenanga Investment Bank said in a note that the ringgit breached the 4.65 threshold against the US dollar for the first time in more than seven months as the local note was dragged down by the weakening of the yuan amid China’s weak economic outlook and the People’s Bank of China’s easing measures.
“Even though the US dollar index has continued to hover around the 102.0 level, the ringgit failed to shed any of its losses as the Fed’s Powell hawkish testimony and the ongoing global tightening bias have sustained the risk-off shifts in sentiment, pushing investors away from risky emerging market assets,” it said.
Hence, the ringgit may continue to struggle for direction and trade between 4.64 and 4.67 against the US dollar due to the lack of domestic catalysts and prevailing risk-off market sentiment.
In the upcoming week, the market may continue to focus on US macroeconomic data, the Fed’s Powell speech, and China’s Purchasing Managers Index reading.
“A combination of weak US data and signs of improvement in China’s economic activity may help to partially bolster the local note. The ringgit may also benefit from any news on China’s plan to roll out additional stimulus measures to support its faltering economy,” it added.
On a Friday-to-Friday basis, the ringgit eased against the US dollar to 4.6760/6805 from 4.6130/6165 a week earlier. Over the trading days of the previous week, the local currency was volatile versus a basket of major currencies.
The local currency inched down against the Japanese yen to 3.2645/2680 from 3.2721/2748 on the previous Friday, depreciated further vis-a-vis the British pound to 5.9469/9527 from 5.9014/9059 last week, and declined versus the euro to 5.0781/0830 from 5.0503/0541 previously.
Similarly, the ringgit traded mostly lower against its Asean peers.
It declined against the Indonesian rupiah to 311.7/312.2 from 308.7/309.1 previously and went down against the Singapore dollar to 3.4568/4604 from 3.4513/4542 a week earlier.
The domestic unit strengthened versus the Thai baht to 13.2765/2950 from 13.2974/3140 last week and eased further vis-a-vis the Philippine peso to 8.38/8.40 from 8.26/8.27 last Friday. – Bernama, June 24, 2023
