KUALA LUMPUR: Donald Trump's return to the White House will mean near-term weakness in the ringgit, with projections of its reaching 4.5 against the US dollar by year-end, as his tariff policies push US inflation higher and potentially delay the US Federal Reserve's rate cut campaign.
Hong Leong Investment Bank (HLIB) Research in its note today said that Trump's win creates an upside bias to US' inflation as his tariff plans could result to an additional estimated US$1.7- 2.6k per annum in costs to middle class households; and his stance on tightening immigration and deporting illegals - may lead to higher wages as employers compete for a shrinking workforce, potentially adding further pressure on prices.
"Trump's policies which brings upside risk to inflation may lead to expectations of a slower rate down-cycle by the Fed than previously envisioned," it said.
The Fed administered its first post pandemic rate cut by -50 basis points (bp) in September 2024 and projects another -50bp reduction in the fourth quarter of 2024 and -100bp in 2025.
"In our view, rising expectations of a softer Fed rate down-cycle – and consequently, slower narrowing of the Fed Funds Rate-Overnight Policy Rate spread – would be negative for the ringgit," it said.
The firm revised its end-2024/average USD-MYR target to 4.50/4.58 (from 4.05/4.50).
Nevertheless, HLIB Research still expects the ringgit to appreciate next year, with its end-2025/average USD-MYR target at 4.00/4.34.
According to CIMB Securities Sdn Bhd, renewed trade tensions under Trump's administration may increase inflationary pressures owing to higher import costs from tariffs.
This could prompt the US Federal Reserve to delay the easing of its monetary policy, keeping global borrowing costs high and underpinning a stronger US dollar.
The firm is reviewing its ringgit performance projections for end-2024 and 2025.