PETALING JAYA: The ringgit hit a three-month high of 4.1145 against the US dollar today after US Federal Reserve chairman Jerome Powell supported market expectations of an interest rate cut later this month.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said Powell’s has been very cautious in his assessment of the state of the global economy, especially in the context of trade conflict, which is highly fluid.
“In that sense, the case for lowering interest rates is valid and the question now is by how much the Fed is willing to cut the federal funds rate this year. This will support the ringgit as foreign funds would flow into emerging markets in search for higher yielding assets. This could benefit the ringgit in the immediate term,” he told SunBiz.
Emerging Asian currencies strengthened against a weaker dollar yesterday and stocks rose amid the prospects of monetary policy support from the Fed.
FXTM market analyst Han Tan said should US monetary policy be eased by a wider-than-expected margin later this month, investors may question the strength of US economic growth momentum.
“Such concerns would encourage a softer dollar environment, presenting Asian assets with more potential upside, while safe havens such as gold and the Japanese yen could also advance further,” said Tan.
Still, potential gains in Asian assets remain capped by the lingering uncertainties surrounding US-China trade tensions. Risk appetite will likely be reined in, until both countries break the impasse and reach a deal that alleviates the global growth outlook.
Market sentiment surrounding the strength of the global economy could be further influenced by China’s economic data releases due over the coming days.
On Bursa Malaysia, the FBM KLCI edged up 0.29 point to close at 1,679.26 today. The market traded within a high of 1,681.78 and a low of 1,674.70 during the day.
Malacca Securities said with the Fed adopting a more dovish tone, there should be some near-term reprieve for Malaysian equities as it sees the positivity on Wall Street also permeating to the local stock market.
It said while the strongest hint of an interest rate cut is set to buoy near-term sentiments, it also underlines the increasing severity of the weakness in the US economy that could spread globally, given its position as the largest in the world.
“Although we think there could be some near-term positivity on Bursa Malaysia, we think that substantive upsides could still be elusive as valuations remain toppish. Hence, we see the 1,680-1,687 levels serving as the near-term resistances with the 1,700 resistance level becoming a significant hurdle. The supports, on the other hand, are at 1,670-1,672 levels, followed by the 1,660 level,” said Malacca Securities.
Schroder Investment Management (Singapore) Ltd chief economist & strategist Keith Wade expects a 25 basis point move at the next Fed meeting at the end of the month and. given its outlook for a sluggish economy, another move in September.
“Both are likely to be presented as ‘insurance’ against the downside risks facing the US economy. Our view is that more will eventually be needed given the headwinds facing the economy,” Wade said.