KUALA LUMPUR: The ringgit, which was Asia’s top performing currency in September, is likely to get an extra boost from the 2018 Budget unveiled on Friday.
Analysts said the ringgit is expected to play catch up with other regional currencies before gaining towards year-end and subsequently being stronger versus the US dollar early next year.
Maybank FX Research reiterated that the ringgit, “being fundamentally and historically undervalued”, is regaining its stability as political and contingent liability risk subsided, oil prices stabilised and as fiscal consolidation gained traction.
“Our forecasts already reflect our concern that there could be some risk of delayed tightening by the United States Federal Reserve and further delays in a US fiscal stimulus and tax reforms.”
The research house’s fair value estimate puts the pair at 3.70 levels. This is based on differentials in interest rate, inflation, current account and reflation variables.
“We had previously said ringgit’s weakness was temporary and not a reflection of underlying fundamentals, which remain intact.”
According to Bank Negara Malaysia, the ringgit was the best-performing currency in Asia in September, appreciating against all regional currencies by 0.3 to 3.1 per cent during the month.
Its appreciation was supported by non-resident inflows of RM5.8 billion into the government bond market, said the central bank in a statement yesterday.
The ringgit and other Asian currencies climbed yesterday on the back of news developments from the US, including the prospect of new Fed chief, which led the greenback to pare its gains, said analysts.
The budget also ensured brighter growth prospects which continued to provide further support to the ringgit, they said.
The ringgit opened at 4.2320 yesterday morning and closed at 4.2310 from Monday’s close of 4.2378.
Maybank FX said solid fundamentals and policies, backed by domestic demand, recalibrated supportive budget, relative stability in oil prices, stabilising foreign reserves and accommodative monetary conditions should provide an anchor for ringgit stability “once short-term noises” subside.
Analysts said real effective exchange rate terms, the ringgit strengthened by 0.5 per cent as of August after falling by 15 per cent between 2013 and last year.
Brighter growth prospects, stronger commodity prices, positive effects of Bank Negara’s onshore measures and other fundamentals have led most analysts to comment that the ringgit was undervalued.
ING, in a Bloomberg forecast poll, ranked the ringgit as among the top-performing Asian currencies next year.
It expects the ringgit to trade at 4.19 versus the greenback for end of this year and 4.00 for end of next year.
Maybank FX said the ringgit-US dollar pair would likely be at the 4.20-4.40 level for this year and early next year before moving to a 4.05-4.20 range in the second half of next year.