ringollar

PETALING JAYA: A weaker US dollar, stronger yuan, favourable domestic macro fundamentals, firm oil prices plus positive benefits from capital flows into this region point to a more favourable ringgit outlook, said AmResearch.

Nevertheless, it said in a report, a play on the ringgit will be driven by several events like FTSE Russell retaining Malaysia in the World Government Bond Index during its next half-yearly review in March; global rating agencies’ views; the US Federal Reserve ending the easing cycle (thus providing room for Bank Negara Malaysia to institute a steady Overnight Policy Rate); political transition; and geopolitical tensions.

Today, the local unit strengthened 0.3% to 4.089 against the greenback.

The research house estimates that the ringgit could reach 4.00 against the US dollar by end of the year from 4.11 in first-quarter 2020 (Q1’20). Conservatively, the ringgit could touch 4.18 by end-2020 from 4.11 in Q1’20.

Despite external headwinds and domestic issues, the ringgit closed stronger in 2019, up 1.1% to 4.09 against the US dollar. During the year, the ringgit traded in a wide range with a high and a low of 4.06 and 4.220. For the whole of 2019, the ringgit averaged at 4.14, with year-end at 4.09.

Interestingly, in December, when the US dollar lost ground that saw relative gains in currencies like the euro (+1.2%), pound sterling (+2.5%) and Australian dollar (+3.0%), the ringgit also benefited. It gained by 2.1% against the US dollar.

“It could well mean that the US dollar which may have peaked in September 2019, should gradually slide. This should see the ringgit strengthening,” said Am-Research.

Besides that, the yields for euro, sterling, Australian dollar and ringgit against the US dollar narrowed in 2019 between 30 and 48bps. Yields are expected to narrow further in 2020.

“For the ringgit to strengthen against the US dollar in 2020, it will also depend on the yuan, given that these two pairs are closely correlated against the US dollar,” AmResearch said.

With the return of risk appetite to China following growing optimism over the Phase 1 trade deal with the US and improving Chinese economic momentum, it should see the yuan continuing to strengthen against the dollar. The yuan is expected to reach 6.80 by end-2020 from 6.95 in Q1’20.

The ringgit ended 2019 higher against the US dollar despite external headwinds and domestic issues. – REUTERS

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