The ringgit broke RM3.99 against the greenback yesterday due to the weakening US dollar, rising oil prices and strong export data which helped bring the currency to a 19-month high.
The local currency, after hitting a low of RM4.4938 against the dollar on Jan 3 last year, rallied by about 11.1% in over a year and stood at RM3.9957 as of 5pm yesterday.
Oanda Corp head of trading for Asia Pacific Stephen Innes said the ringgit should continue to appreciate closer towards its fair value of RM3.75 to RM3.80 — though at a slower pace compared to the US dollar.
“The combination of a weaker US dollar along with the firming oil prices appear to have been enough to break psychological support in the dollar-to-ringgit exchange,” Innes said.
“While the ringgit should continue to strengthen on a benevolent US Federal Reserve (Fed) outlook and rallying energy prices, the market has most likely sufficiently priced in a January interest-rate hike in Malaysia, so we may see the pace of appreciation slow-ing down.”
He added that profit-taking is expected to set in ahead of this month’s rate decision, which will contribute to the slowdown in appreciation.
The ringgit has also been the beneficiary of the stronger oil price environment after Brent crude oil broke the US$68 (RM272) per barrel last week — a new high since June 2015.
“The recent supply disruption along with escalating tensions in the Middle East are having a more significant impact on oil prices in the wake of the OPEC’s recent supply cuts,” Innes said.
According to MIDF Amanah Investment Bank Bhd, the local currency breached the RM3.99 mark against the greenback on the back of a robust economic momentum.
“The ringgit’s continued strengthening is underpinned by further solid expansion in Malaysia’s external performance in November (last year),” the research firm noted in its report yesterday.
Exports and imports grew by 14.4% year-on-year (YoY) and 15.2% YoY respectively, while trade surplus was recorded at RM9.9 billion during the month.
It also forecast the ringgit to average RM4 to the dollar, while reaching RM3.95 by the end of 2018.
The local currency remains susceptible to the US’ aggressive interest- rate hikes, the fall in oil prices and geopolitical tensions from North Korea — though these are all outside risks.
“Although it seems unlikely, a faster pace of interest-rate normalisation from the Fed and a stronger dollar will stop the ringgit dead in its tracks,” Innes told The Malaysian Reserve.
“An improbable slide in the global oil price of below US$50 per barrel and the escalation of North Korean geopolitical risk would also dampen regional sentiment.”
He, however, added that Bank Negara Malaysia’s (BNM) decision not to raise the Overnight Policy Rate (OPR) this month will likely push the ringgit back to the RM4.10 level to the dollar.
A change in Malaysia’s status quo following the 14th General Election, of which markets have factored in for the year, could also weigh negatively on the ringgit.
“The market embraces continuity and hates change, so any hint of a Tun Dr Mahathir Mohamad-Datuk Seri Anwar Ibrahim alliance making headwinds in the polls could upset the apple cart,” Innes said.
“I also expect the coalition to focus on the 1Malaysia Development Bhd scandal, but I think this is old news and Prime Minister Datuk Seri Mohd Najib Razak will easily skirt the issue.”