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Ringgit estimated to drop to RM3.35 to RM3.45 range against Singdollar

Ringgit estimated to drop to RM3.35 to RM3.45 range against Singdollar

KUALA LUMPUR – The ringgit is likely to hit 5.00 against the US dollar, its lowest level, in the next six months.

It is largely triggered by the exceptionally strong US dollar on the back of the United States Federal Reserve’s ultra hawkish stance on interest rates and continued global uncertainties amid stubbornly high inflation.

Ahead of the Fed’s decision on interest rates on Wednesday and decline in oil prices, the ringgit closed lower at 4.73 against the greenback on Tuesday from Monday’s close of 4.72.

This week, economists anticipate the US central bank to raise interest rates aggressively by three quarters of a percentage point, laying the ground to reach 5 per cent by March next year, in order to rein in inflation.

This, in turn, will strengthen the US dollar, which is currently at its strongest since the early 2000s against a basket of other major currencies.

Year to date, the greenback has strengthened by about 13.7 per cent against the ringgit on Tuesday.

Johns Hopkins University’s Eni Professor of international economics Michael Plummer foresees the ringgit to tumble close to 4.90 against the US dollar by end-2022 before falling further to 5.00 in the first quarter of 2023.

According to Professor Plummer, the flight to safety, as the phenomenon is known, will lead to investors purchasing safer assets.

This, coupled with rising interest rates and stronger economic growth in the US, will strengthen the greenback and, in turn, weaken the ringgit.

Last Thursday, data revealed that the US gross domestic product grew by a better-than-expected 2.5 per cent in the third quarter, after two quarters of negative growth. This was above Dow Jones forecast of 2.3 per cent.

“The continuation of these factors that result in the uptrend of the US dollar should lead to a negative effect on the ringgit. I would anticipate a continuing, slow fall in the value of the ringgit through early next year, with the US dollar hitting RM5 in early spring but not going much beyond that in the short-term,” Prof Plummer told The Straits Times.

Although the RM5 level against the US dollar is not within Maybank’s forecast, its chief forex strategist Saktiandi Supaat said a confluence of factors occurring at the same time could weaken the ringgit to 5.00 against the greenback.

This includes a stronger dollar on the back of Fed signalling aggressive rate hikes along with greater political uncertainty ensuing from the Malaysia’s election outcome, a fall in commodity prices and a sharp drop in economic growth figures from China and Asia, Mr Saktiandi added.

The Singapore dollar, meanwhile, has been the outperformer among Asian currencies due to the Monetary Authority of Singapore (MAS) tightening monetary policy five times over the past 12 months.

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