KUALA LUMPUR – The Malaysian ringgit is poised for a reprieve after its worst monthly performance since late 2016 as China’s reopening heralds more tourist arrivals and bolsters exports.
DBS Group Holdings, Barclays and RBC Capital Markets see the currency staying at around the current level of 4.45 by the end of June.
Fears that the United States Federal Reserve may prove hawkish for longer hammered emerging markets in February, driving a 4.8 per cent slide in the ringgit versus the US dollar before sentiment stabilised in recent days.
The Singapore dollar inched down 0.06 per cent to 3.3239 against the ringgit as at 11.13am on Monday from its previous close. In the year to date, the Singdollar is up 1.3 per cent against the Malaysian currency.
“The impact of China’s reopening in terms of tourism arrivals and trade will be felt more keenly by the middle of the year, helping support the ringgit,” said Dr Alvin Tan, head of Asia foreign exchange strategy at RBC Capital Markets in Singapore.
“Plus, pressure on emerging market currencies will ease as the Federal Reserve inches closer to the end of its rate hike cycle.”
China’s economic rebound is set to boost the outlook for Asian currencies this year, with the ringgit also seen as a beneficiary of Malaysia’s strong trade links to the world’s second-largest economy.
China was Malaysia’s biggest export destination before the pandemic and even as its share has fallen since then, it still stood at US$47 billion (S$63.2 billion) in 2022, about 14 per cent of the total.
There is also potential for a rebound in tourist arrivals from China after the nation dismantled its strict Covid-19 restrictions.
Malaysia attracted 108,067 Chinese tourists from January to September 2022, compared with 3.1 million in 2019.
Bank Negara Malaysia’s policy decision on Thursday will also be on the radar for currency traders. A Bloomberg survey of 16 analysts so far shows nine expecting the central bank to hold rates at 2.75 per cent for a second consecutive meeting. The rest see a quarter-point hike.
HSBC Holdings is predicting bigger gains for the ringgit as the prospect of the Fed reaching the end of its tightening cycle is set to end the dominance of the dollar. Traders are pricing the peak of US rates to happen in September.
“The ringgit is very sensitive to the broad dollar movement,” said Mr Paul Mackel, global head of foreign exchange research at HSBC in Hong Kong, which forecasts the ringgit at 4.28 by the end of June. “The combination of a solid external position and potential for stronger capital inflows could also help the ringgit.”
Bank Negara has also increased its ability to defend the currency from volatility as foreign reserves rebounded from a two-year low reached in October. The nation’s dollar stockpile has risen about 10 per cent since then to US$115 billion in January.
“(Bank Negara) will lean against the move if the pressure on the currency is sustained,” said Mr Ashish Agrawal, head of foreign exchange and emerging market macro strategy research at Barclays in Singapore. “The narrative would be more like stability for the ringgit ahead after weakening sharply recently.” BLOOMBERG
