Ringgit less susceptible to spikes in volatility, says UOB

KUALA LUMPUR: The ringgit is expected to be less susceptible to sharp spikes in volatility compared with other regional currencies due to the support from favourable domestic growth drivers.
The United Overseas Bank (Malaysia) Bhd (UOB Malaysia) remains positive on the outlook for the ringgit over the next six to 12 months, supported by global growth conditions, higher domestic private consumption levels and private investment spending, and an orderly foreign exchange onshore market.
UOB Malaysia maintained its projection for USD/MYR of 3.88 by mid-year and 3.80 by year-end, with a fair value of 3.60 to 3.70 against the dollar.
Economist Julia Goh said the growing tension around US trade tariffs may trigger renewed market volatility while the possibility of more rapid reduction of the US Federal Reserve’s balance sheet and a faster pace of interest rate rises in the US, may also add further pressure to currency markets.
“The introduction of US trade tariffs and the possible proliferation of further protectionist trade policies could impact global export and trade activity. There is a risk that export-driven Asian economies could be negatively impacted by such trade policy revisions.
“While we do not expect global trade to fall significantly at this juncture, if global trade relations deteriorate dramatically the result could be a stronger USD as investors move to safe haven assets. This may cause regional currencies to weaken against the USD in the near term,” she said.
Speaking to reporters at a briefing today, Goh said the tariffs are still quite uncertain at this point as the US government will need to seek public opinion before there is greater clarity on the actual tariffs.
“For now, I think the Trump administration’s goals would be to balance between seeking political mileage from what they’ve done in a year of mid-term elections but also at the same time they need to balance it with the fact that they would not want to see very sharp negative effect on global markets and even on the US economic growth and global growth. What we are hoping to get out of this is negotiated solutions with all the other countries particularly China,” she said.
Malaysia’s trade exposure to both China and the US is 25% of total trade.
For Malaysia, solar equipment would be the area with the biggest exposure. There could also be areas within the machinery and electrical household goods which could be included in the tariffs, where Malaysian suppliers and businesses could be part of the supply chain.
Goh said trade friction is not likely to escalate into a trade war as China’s reaction to the tariffs has been very restrained and it is evident that both countries are still trying to find room for a negotiated solution. Despite that, markets are naturally quite jittery due to the uncertainty of the tariffs.
It expects Brent crude oil to range from US$60 (RM235) to US$70 (RM274) per barrel this year, which is a ringgit-positive factor.