Demand for dollar, US-China trade tensions to weigh on ringgit

PETALING JAYA: The ringgit, which fell below 4.00 to the US dollar Monday, is expected to see more losses, currency observers opine, as appetite for the greenback grows unabated and fears of a trade war between China and the US persist.
The ringgit hit an intraday low of 4.0015, before closing at 3.9985 to the dollar Monday.

FXTM global head of currency strategy and market research Jameel Ahmad expects more losses for the ringgit with no signs of a slowdown in demand for the US dollar.
"The performance of the ringgit over the near future will be dependent on how the markets react to the latest instalment of concerns over China and the US entering a potential trade war. The concerns have increased since the end of last week, and resulted in risk aversion being seen in the markets," he told SunBiz.
He said a number of different emerging market currencies across Asia began the new trading week on the back foot from the trade tensions between the US and China, including the yuan, with current losses close to 0.6%.
"The Indonesian rupiah, Malaysian ringgit, Philippine peso and Thai baht are just a few of the many Asian currencies to have followed the same lead. If the ringgit does fall below 4.00 against the dollar, then it's possible the new range for the ringgit will be between 4.00 and 4.50," he said, adding that it will be no surprise if investors choose to invest in safe-haven assets such as the yen and gold again.
Jameel said the persistent nature of external factors manipulating the movements in a wide range of emerging market currencies makes it impossible to provide an outlook for where the ringgit could conclude at year-end.
"However it does appear that investors are determined to remain attracted towards the US dollar, which increases the probability that the ringgit could be set for a prolonged return below 4.00 against the dollar," he said.
"One of the main reasons why the US dollar is being so heavily backed by investors is because of how far ahead the US is in terms of both economic progress and monetary policy, in comparison with its developed peers," he added.
Jameel said the US economy and the Federal Reserve are offering investors consistency, something that other developed economies and central banks, such as the Bank of England, European Central Bank (ECB) and Bank of Japan, are ultimately unable to offer.
DBS Group Research FX strategist Philip Wee and rates strategist Eugene Leow said Asian currencies are facing depreciation pressures on two major fronts, the first being monetary policy divergences that have returned to support the US dollar globally.
"The Fed has affirmed that it will be moving to deliver a total of four, not three, rate hikes this year. The ECB has confirmed that asset purchases will end in December which forced markets to reverse earlier bets for the central bank to bring forward its rate hike into 2019," they said in a research note Monday.
Secondly, US-China trade tensions have returned despite a better-than-expected outcome at the Kim-Trump summit and for the first time in half a year, Asia's export-dependent currencies have depreciated.
"The Singapore dollar and the Korean won depreciated past 1.35 and 1100 respectively. As for the region's three strongest currencies this year, the Thai baht has begun to depreciate for the year last week, with the Chinese yuan and Malaysian ringgit set to follow next," they said.
Sunway University Business School economics professor Dr Yeah Kim Leng, however, believes the weakening of the ringgit is a short-term reaction due to the US rate hike and expects the local note to retrace its losses and end the year between 3.80 and 3.90 against the dollar, supported by long-term fundamentals such as current account surplus, high oil prices and positive growth.