PETALING JAYA: PublicInvest Research is of the view that the ringgit’s ascent against the US dollar would be held back by various external factors including the limited upside of oil prices, Brexit-related uncertainty and US-China trade negotiations.
This is despite an expected rise in demand for the ringgit on the back of the capital reorientation into the emerging market economies (EMEs).
“The negative outcome of the former (Brexit) may stoke demand for safe-haven currencies especially the dollar and the yen. The latter (trade spat) may continue to weigh on EMEs as it looks set to be prolonged given the complexity and intensity of the whole situation,” the research house said in a note last Friday.
The US President Donald Trump has said that the new higher tariff on China’s goods could stay in place for substantial period of time, long after the conclusion of the trade negotiations which could irk and push China to retaliate and hence, put further stress on global capital markets.
“All this negative sound bites are a drag on EMEs which could limit the upside of ringgit,” PublicInvest said.
It, however, expects the ringgit to be stronger at 4.00 per US dollar in 2019 versus 4.04 year-to-date. At 5pm last Friday, the local unit traded at 4.0625.
The research house said the the US Fed’s pause on rate hikes could clamp volatility and push investors to resume their searches for yield in the region, thus Malaysia’s key indicators are set to benefit from this new dynamic especially the ringgit and forex reserves.
“In fact, Malaysia could be the immediate target driven by higher real rate of return vis-a-vis the US (with the pause) thanks to our higher interest rate and benign inflation.”
The undervalued position of the ringgit is another appealing factor for Malaysia. The local unit could gain from higher risk tolerance in capital markets while forex reserves could benefit from translation gains in 2019, a reverse position against 2018, though there remains uncertainty in view of the macroeconomic risks in advanced economies.
