Ringgit poised for gains in 2018

The ringgit exchange value remains on track to hit the RM3.90 mark against the greenback next year, as the strong Malaysian economy and higher trade with China hold out over lingering concerns tax reform in the US.

The local unit could see a reversal of fortunes if a stronger US dollar in 2018 triggers capital outflows from emerging markets (EMs).

Oanda Corp head of trading for Asia Pacific Stephen Innes said the ringgit will be the favoured Asean currency in 2018, but with a slower pace of appreciation.

“This is because of Bank Negara Malaysia’s (BNM) expected rate normalisation, a strong domestic economy as the country directly benefits from the One Belt, One Road (OBOR) trade initiative and higher projected oil prices,” Innes told The Malaysian Reserve (TMR).

He expects a dollar-ringgit exchange of RM3.90 in 2018.

Malaysia’s export sector should remain strong as the economy continues to strengthen ties with China, coupled with the optimistic view on global growth.

“I see Malaysia as a considerable beneficiary of the OBOR initiative which will open up a greater collaboration for Malaysian manufacturers and mainland firms,” he said, adding China is expected to make more significant investments in core Malaysian sectors as a result.

BNM will also likely favour a stronger local currency to deflect anticipated inflation pressures, while a dovish stance from the central banks in the Group of 10 (G-10) economy bodes well for Asian currencies including the ringgit, according to Innes.

After testing a one-year high on Dec 5 at RM4.0665, the ringgit has since eased over the past two weeks to RM4.07 and RM4.08 levels.

Innes said the recent easing of the ringgit against the greenback is stemming from a “general US dollar malaise setting in”, as dollar bulls do not believe there will be sufficient economic bounce from US tax reform, while dollar bears are hoping to avoid a US dollar uptick on the tax reform announcement.

“So as long as the US Federal Reserve (Fed) remains more focused on inflation over growth, US interest rates should stay lower for longer into 2018 in the absence of inflation, supporting the global ‘Goldilocks’ or moderate economy,” he said.

“The Goldilocks economy should augur well for global stock markets including Bursa Malaysia.”

 

The Malaysian Reserve

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes