KUALA LUMPUR – The ringgit is expected to trade at 4.20 versus the US dollar in the first half (H1) of 2022 and improve further to the 4.15 level in the second half (H2), according to Standard Chartered Bank Malaysia Bhd (StanChart).
Head of Asean and South Asia FX research Divya Devesh said the projection was made based on positive drivers that included commodity prices, tourism recovery, and encouraging foreign direct investment (FDI) flows into Malaysia.
“Essentially, we know what has happened with commodities over the past 18 months: commodities have had a very strong run and that has really translated into improved terms of trade for Malaysia.
“Malaysia’s export performance has been very strong. If you look at the trade balance, it has improved significantly. For the current account as well, we think the surplus will remain quite strong this year,” he said during the StanChart Global Research Briefing 2022: H1 2022 Global and Malaysia Outlook today.
Divya said StanChart has projected a higher current account surplus of 3.2% of gross domestic product (GDP) for this year.
On tourism recovery, the bank expected the industry to come back in H2 this year, depending on the Covid-19 situation, which definitely would benefit the ringgit, he said.
“Clearly, Thailand and the Thai baht are going to be, by far, the biggest beneficiary of a tourism recovery. But second after Thailand is going to be Malaysia and the ringgit in our view.
“On the FDI, it has really picked up over the past year, which has also benefitted Malaysia and will be supportive of the local note,” he added.
However, on the negative side, he said, there seemed to be an increased appetite for foreign currency assets among Malaysian residents.
“So what we are seeing in terms of the balance of payments data is that there is a pickup in demand for things like foreign currency deposits.
“If you look at the banking system foreign currency deposits that have increased, there also seems to be a pick-up in demand for foreign currency or foreign equities rather.
‘So those kinds of flows have sort of offset some of this improvement that we are seeing in the current account,” he said.
Nevertheless, Divya noted that it was not specific to Malaysia as there is an increased appetite for foreign assets in a number of other countries as well.
Meanwhile, commenting on the US dollar, he said the greenback would broadly remain higher in H1 2022.
“It is noted that the United States Federal Reserve (Fed) is going to hike rates in March, and in the run up to the first rate hike, the markets might look at the US dollar more favourably.
“But it’s also our view that perhaps the Fed will not be able to deliver as much hawkishness now,” he said, adding the markets are now pricing almost 90 basis points of rate hikes this year. – Bernama, January 11, 2022
