Ringgit likely to strengthen well below 4.55 against US dollar next week

KUALA LUMPUR: The ringgit is likely to strengthen well below 4.55 against the US dollar next week, said Kenanga Investment Bank Bhd.

In its ringgit weekly outlook, Kenanga Investment Bank said the optimistic outlook is driven by a combination of factors, including a limited negative impact on the British pound from the Bank of England’s recent rate cut and ongoing signs of a United States (US) economic slowdown.

“The weak US Institute of Supply Management’s manufacturing purchasing managers index of 46.8, compared to the consensus of 48.8, indicates persistent economic challenges in the US.

“This may continue to pressure the US Dollar Index (DXY) downward and potentially strengthen the ringgit to trade well below 4.55 against the US dollar,” it said.

Kenanga Investment Bank added that disappointing US non-farm payroll numbers and a rise in the US unemployment rate could heighten market expectations of multiple Federal Reserve (Fed) rate cuts, reinforcing its soft-US dollar narrative.

Meanwhile, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid told BK that the anticipation for a US rate cut continues to gain momentum.

“All this points to a narrowing in the interest rate differentials between the Fed Fund Rate and overnight policy rate.

“This will continue to support the value of the ringgit going forward, especially when the ringgit is still deemed undervalued,” he said.

Mohd Afzanizam said that given the sharp appreciation of the ringgit recently, it may take some time to breach the current support level as market participants might want to cash out some of the gains.

As such, he expects the ringgit to range between RM4.48 and RM4.49 next week.

Meanwhile, UOB Kay Hian Wealth Advisors head of investment research Mohd Sedek Jantan said the ringgit is forecast to continue its rally next week, following a significant drop in the DXY after the release of non-farm payroll data.

The data showed an increase in the unemployment rate to 4.3 per cent, exceeding economists’ expectations.

Mohd Sedek anticipates the ringgit will continue to strengthen as the US dollar struggles to maintain its current value. With the Bank of Japan having hiked interest rates, investors may shift their investments to emerging markets.

“This will benefit the ringgit as investors diversify their portfolios to reduce risk, leading to increased foreign inflows to Malaysia, which will strengthen the ringgit.

“However, a sharp strengthening might cause a short-term correction. Nevertheless, we do not anticipate this happening in the near term as the ringgit has just begun its recovery,” he said.

For the week just ended, market reaction to US Fed chair Jerome Powell’s signal of a September rate cut resulted in emerging currencies, including the ringgit, appreciating against the US dollar.

On a Friday-to-Friday basis, the ringgit appreciated to 4.4945/4995 against the US dollar from 4.6550/6605 a week ago.

The ringgit also traded higher against a basket of other major currencies.

The local note strengthened versus the euro to 4.8635/8689 from 5.0530/0590, higher against the British pound to 5.7264/7328 from 5.9901/9971 last Friday, but almost flat vis-a-vis the Japanese yen to 3.0177/0214 from 3.0176/0214 a week earlier.

Meanwhile, the ringgit also gained against ASEAN currencies.

It improved against the Philippine peso to 7.73/7.75 compared with 7.97/7.99 a week earlier and rose versus the Indonesian rupiah to 277.4/277.8 from 285.5/286.0.

The ringgit appreciated vis-a-vis the Singapore dollar to 3.3750/3793 from 3.4641/4684 and went up versus the Thai baht to 12.7093/7284 from 12.9069/9268 last Friday. – BK