The ringgit and other regional currencies are expected to strengthen on expectations that the US dollar will weaken as the Fed starts to cut interest rates later this year, said MIDF Research.
PETALING JAYA: The ringgit is expected to appreciate towards 4.20 against the US dollar by year-end, despite the lacklustre performance of the local currency at the outset of the year, said MIDF Research.
In a statement, the research house said the strengthening of the ringgit will be supported by the expected decline in interest rate differentials, as the US Federal Reserve (Fed) is expected to lower its interest rates while Bank Negara Malaysia (BNM) is likely to maintain the Overnight Policy Rate (OPR) at 3%.
“The adjustments are likely to favour the ringgit and other regional currencies as we expect more funds to flow back into emerging markets. Moreover, the ringgit stands to gain from an external trade recovery as China’s economy continues to recover.
“However, concerns about the recession risk in the US and prolonged weakness in global trade and manufacturing activities could limit the ringgit’s prospects,” it said.
Additionally, the ringgit’s outlook may be affected by continued strength in the US dollar if the Fed delays rate cuts to a later period given the resilience in the US economy and elevated inflation.
“We foresee the ringgit and other regional currencies to strengthen on expectations that the US dollar will weaken as the Fed starts to cut interest rates later this year. As a result, emerging market currencies are likely to benefit from the return of appetite for riskier assets.
“Additionally, recovery in regional trade, on the back of a pick-up in global production activities and continued recovery in China, is also expected to provide support to emerging market currencies,” it said.
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