Ringgit rises as optimism about rate cuts persists

KUALA LUMPUR: The ringgit rebounded higher on Friday against the US dollar as investors shrugged off US higher-than-expected consumer price index (CPI) data.

At 9 am, the ringgit appreciated to 4.6405/6455 versus the greenback from Thursday's close of 4.6425/6455

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the US headline CPI and core CPI came in slightly higher in December at 3.4 per cent and 3.9 per cent, respectively, against consensus estimates of 3.2 per cent and 3.8 per cent.

However, the bond market continues to exhibit a decline in yields, suggesting that market participants continue to expect a rate cut.

Two- and 10-year US Treasury yields were down by 6.0 and 11 basis points to 4.25 per cent and 3.97 per cent, respectively.

Similarly, the US Dollar Index (DXY) declined 0.04 per cent to 102.325 points.

"On further scrutiny, higher headline CPI was largely supported by a rise in transport sub-index due to a sustained rise in motor vehicle insurance, which has been edging up 20.3 per cent during December as the insurance premium has gone up following higher labour cost, shortage of mechanics and rising auto parts prices.

"So, the higher inflation was not so much due to demand, and the disinflationary trend is still intact. This could be the reason why the markets are not convinced that the Fed will change their tact and the rate cut thesis still holds," he told Bernama.

On that note, he expects the ringgit to appreciate against the US dollar today.

"It's a question of timing, whether rate cuts are going to be in March or later," he added.

Meanwhile, the ringgit was traded lower against a basket of major currencies.

It weakened versus the euro to 5.0929/0984 from 5.0896/0929 yesterday, depreciated vis-a-vis the British pound to 5.9250/9314 from 5.9141/9179 on Thursday and decreased against the Japanese yen to 3.1944/1981 from 3.1896/1919.

The ringgit also traded higher against Asean currencies.

It strengthened against the Singapore dollar to 3.4878/4918 from 3.4901/4926 at Thursday's close and rose vis-à-vis the Philippine peso to 8.28/8.29 from 8.29/8.30. 

The local currency was slightly better versus the Indonesian rupiah at 298.4/298.8 from 298.5/298.8 and gained against the Thai baht to 13.2287/2505 from 13.2408/2551 previously. - Bernama

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