KUALA LUMPUR: The ringgit rose to its strongest position in a year versus the US dollar yesterday due to improved oil prices.
Catching up with the regional peers, the ringgit is expected to strengthen the most next year.
The local currency opened at 4.1885 versus the US dollar yesterday morning before closing higher at 4.1765 versus Tuesday’s close of 4.1935.
Although the Brent crude futures were lower by one per cent at US$61.61 per barrel from their last close, analysts were encouraged by the return of oil prices to the 2015 levels.
Maybank FX said Bank Negara Malaysia’s “hawkish tilt” towards the Overnight Policy Rate (OPR) list as also one of the top drivers of the ringgit.
The Deputy Prime Minister Datuk Seri Ahmad zahid Hamidi’s comment about the general election next year was also a contributing factor.
The continuity of the US central bank’s monetary policy and subdued inflationary pressures in the US as well as a backdrop of a recovery in the global economy should bode well for trade-dependent Malaysia and the ringgit.
Forex analysts told the Bloomberg that the ringgit will strengthen in the coming months due to factors including undervaluation, healthier FX reserves and stabilisation in imports and short-term debt coverage.
ForexTime Ltd analyst said last week that the ringgit is headed towards the psychological level of 4.00, adding that the worst was over for the ringgit.
He said the best scenario for the ringgit would probably be around 3.80-3.90 range and that may likely happen in quarter two or quarter three next year.
The stronger ringgit outlook against the US dollar is supported by improving sentiments.
Bank Negara’s external reserves improved to US$101.4 billion at end-October, net foreign inflow into equities market at RM9.8 billion at end-October, foreign holdings in MGS at 42.7 per cent and a more stable foreign currency deposits at around 7 per cent.