KUALA LUMPUR: The improving ringgit sentiment will lift the local currency versus the US dollar in the last quarter of this year, according to foreign exchange (forex) market analysts.
The ringgit’s real effective exchange rate, which measures its value against a basket of other currencies, is below its historical average and trading close to the 1997/1998 Asian financial crisis levels.
It remained among the most undervalued emerging market currencies, said analysts.
On Friday, the ringgit opened at 4.2008 and closed at 4.1895 versus the greenback, against Thursday’s close of 4.2055.
Standard Chartered Bank Forex strategist Divya Devesh said foreign investors’ overall positioning was light and portfolio flows had improved modestly so far this year.
“More importantly, the ringgit sentiment onshore has improved, with better US dollar supply dynamics,” he said.
Foreign reserves have also risen above US$100 billion (RM419 billion), which will help to boost the sentiment level.
The research house has maintained its year-end forecast of RM4.10 versus the US dollar.
“The ringgit also benefits from Malaysia’s strong linkage in the global supply chain amid robust global export volumes,” said Devesh.
Credit Suisse economist Michael Wan agreed that the outlook for the ringgit was more stable with stronger current account and forex liquidity.
He attributed the strength to Bank Negara Malaysia’s measures requiring exporters to repatriate their forex earnings, which led to an improvement in the liquidity as well as demand for ringgit.
Latest data from the central bank shows that net forex conversion rose to US$1.1 billion in May, compared with US$900 million from January to April.
Wan expects the current account to continue to see some support in the second half on a year-on-year basis, reflecting the four to six months’ lag between liquefied natural gas exports and oil prices.
“Some of the import pick-up in the first half was likely a one-off reflecting machinery imports for infrastructure activity, the bulk of which should not be repeated in the second half,” he said.
Credit Suisse expects the ringgit to strengthen to RM4.10 in three months and RM4 in 12 months against the US dollar.
In its outlook, Malayan Banking Bhd forex research said stability was gradually returning to the ringgit as political and contingent liability risk subsided, fiscal consolidation gained traction, oil prices continued to stabilise and uncertainty subsided.
According to its fair value model, which takes into account the relative differentials in interest rates, inflation, current account and a reflation proxy variable, the current level of the ringgit is about 10 per cent undervalued.
“Bearish momentum on daily chart remains intact while stochastics is near oversold conditions… this may pose mild rebound risks in the near term but range trades of 4.18–4.21 should continue to hold,” it added.