Budget forecast to shore up ringgit showing

PETALING JAYA: The US dollar continues to strengthen at the cost of regional currencies including the ringgit, which closed at a 11-month low yesterday leading forex traders and analysts to pin hopes on currency interventions and a recovery in Chinese data to provide relief for the local unit.

The ringgit closed fractionally lower at RM4.728 yesterday against the greenback but not before hitting a low of RM4.7352 in intraday trade as traders said the prospects of currency interventions helped ease the pressure from the mighty US dollar.

AmBank Research noted the local unit depreciated 1.2% against the greenback in September given the Federal Reserve’s (Fed) hawkishness post-September Federal Open Market Committee outcome and despite the uptick in oil prices.

Tradeview Capital chief investment officer Nixon Wong said the weakening of the ringgit had mostly been due to the yield spread between the United States and Malaysia.

“This situation arises because there is a positive carry when switching to the US dollar, earning US dollar at a 5.6% rate, that can be funded with the ringgit at a 4% rate.

“Currently, if investors were to put their money in US short-term rates, I could earn a 5.6% interest rate, as opposed to 4% with the ringgit,” he said.

He added the weakening of the ringgit was also in tandem with the movement of the Chinese yuan which is weakening due to the slow growth of China’s economy. With China as the country’s largest trading partner, it is natural for the ringgit to stay competitive by following the movement of the yuan.

“Thirdly, it is also due to the ringgit’s relatively lower interest rate compared to that of the United States, which is causing the ringgit to be in an unfavourable position. Hence, whether or not the ringgit will remain weak in the fourth quarter depends on how quickly China recovers.

“There is some hope post-China’s Golden week at the moment, that there will be some recovery in economic data, in terms of consumption. This will likely spur China’s economic recovery and improve the position of the yuan,” Wong told StarBiz.

He said the ringgit may see some relief from the upcoming Budget 2024. “Given that it is a pro-growth budget, there will likely be some encouraging policies to drive the economic growth of the country.

“This could provide short-term support for the ringgit’s position, ensuring that it does not continue to weaken from its current level,” he said.

On whether Bank Negara may raise interest rates to support the ringgit, Wong said it will not likely happen, as economic growth may be impacted.

“The central bank needs the rate to stay at this accommodative level to make sure growth does not slow and that there will be a soft landing. There is actually limited room for Bank Negara to exercise anything right now,” he said.

So far various monetary authorities have tried to talk up their currencies while reports said the Reserve Bank of India has sold the dollar to stop the rupee from hitting a record low.

Bank Indonesia has also said it’s in the market. A currency trader believes any intervention by the Bank of Japan at the 150 levels against the Yen will provide some relief for emerging market currencies like the ringgit.

The Japanese unit is also at a year low against the greenback with currency traders anticipating market participants to suspect that there may have been intervention by Japanese monetary officials will seek to keep the yen from falling further.

Newswires reported Japanese Finance Minister Shunichi Suzuki said authorities were watching the currency market closely and stood ready to respond. He however added any decision on currency market intervention would be based on volatility instead of specific yen levels.

“The currency was pressured by BoJ’s persistence in its dovish tone during September’s meeting, keeping its policy unchanged including the yield curve control target. Though, earlier during the month under review, BoJ Chief Kazuo Ueda said the central bank could end its negative interest rate policy when the 2% sustainable inflation target is in sight, and it could have enough data by the end of 2023,” Ambank said.

Rakuten Trade head of equity sales Vincent Lau said the weakening of the ringgit is altogether related to the strengthening of the US dollar.

“In my view, the ringgit is likely to recover, but currently the US dollar is strengthening. We can also see this in terms of the Japanese Yen against the US dollar. BOJ tries to intervene but failed. So currently it is the strength of the US dollar and the interest rate in US continues to be high and there is the possibility of another rate hike by the Fed, that is why the money is all flowing back there,” he said.

Lau said the country’s economic fundamentals remain fairly sound and should recover between the RM4.50 to RM4.60 level by the end of the year. He added another 25 basis point rate hike by Bank Negara would not help the ringgit and may end up burdening the people as well.

“In China, the government is taking a gradual approach to economic recovery. They are not planning to flood the market with stimulus measures but are instead making measured efforts to facilitate the recovery. While progress is evident, it may not be as rapid as everyone had hoped for.

“During the Golden Week, plane ticket sales have surpassed pre-pandemic levels, indicating a degree of recovery. However, the Chinese government is cautious about introducing excessive volatility or dramatic measures that could disrupt the situation. They are proceeding at a measured pace in their efforts to achieve a stable and sustainable economic recovery,” he said.