KUALA LUMPUR: The ringgit kicked off trading on Monday weaker with economists expecting a bit of a setback for the rest of this week as the solid US jobs data sees the greenback continuing to gain traction.
They also said the reduced sentence for former prime miniister Datuk Seri Najib Razak was not expected to affect the performance of the local currency as well as stock market excessively as Malaysia's fundamentals remain intact.
The ringgit slipped on Monday following the release of the non-farm payrolls (NFP) data and two-year US yields surged nearly 20 basis points.
At 9.05 am, the ringgit stood at 4.7570/7620 versus the greenback compared with last Friday's close of 4.7155/7185.
SPI Asset Management managing director Stephen Innes said Friday's robust report on the US labour market had sent shockwaves throughout the rates complex, sparking significant movements at the short end and providing substantial support for the greenback.
The swift sell-off in the two-year US yields marked the year's most pronounced move thus far, nullifying the rally prompted by concerns surrounding regional banks earlier in the week.
"The implications for the US dollar were clear: Strength. Friday witnessed the greenback's second-largest rally of the year, which has already seen a 2.5 per cent increase in 2024.
"All in all, the ringgit was hammered lower at the open (on Monday), where local investors can really poison the well today as there are many toxic elixirs to choose from today," Innes told Business Times.
He said the US Federal Reserve chair Jerome Powell had concluded a 60-minute TV interview on CBS where he really pushed back on market rate cut pricing, suggesting the Fed will only cut interest rates three times whereas market pricing was for between five and six.
"And this is really playing out negatively for the risk market, hurting Asia FX in general," he added.
Meanwhile, Nusantara Academy for Strategic Research senior fellow Dr Azmi Hassan expects little impact on the ringgit following Nasjib's reduced sentence, as the stability of the government and the fundamentals of the economy remain unaffected directly.
"Foreign investors are expected to reassess positively, acknowledging Datuk Seri Anwar Ibrahim as the prime minister alongside government stability, including UMNO. The stability of the government will likely be re-evaluated on a positive note.
"Malaysia has adhered to the rule of law in granting a pardon to Datuk Seri Najib Razak, even though he is an ex-prime minister, despite the VVIP treatment in the pardon process.
"The adherence to legal procedures gives foreign investors confidence that Malaysia operates within the confines of the law, thus boosting confidence in the government's commitment to legal processes," said Azmi.
Independent economist Julian Suresh Sundaram said strong US payrolls amid a reassessment of a March rate cut had pushed the dollar back to where it was in mid-December.
That was before the December Federal Open Market Committee (FOMC) meeting when Powell also acknowledged that the FOMC discussed when it will become appropriate to begin dialling back its policy restraint.
"Momentum had carried both dollar and yields lower in December before turning at the turn of the year, rising on dip buying after markets got ahead of itself on rate expectations. This was followed by another step higher on Fed speak playing down the prospect of four to five rate cuts for 2024.
"Since then data has been good aiding the Dollar before gaining sharply after payroll figures handily beat expectations," Sundaram said.
He said a week of consolidation for the dollar with likely downside pressure on yields as markets push back rate cut expectations. Central bank speak will induce volatility if not direction.
The dollar trading around current levels will provide little respite for the ringgit, he added.
"Local markets, however, are doing well and echoes my post on 17 Jan with the ringgit having a rather more limited impact on local equities than previous iterations. Either way, it's still looking positive for both domestic equity and bond markets," he said.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the sharp increase in the NFP in January suggests that the US labour remained resilient despite having to contend with a higher interest rate environment.
This would mean the possibility of a rate cut in March has been greatly reduced and it might occur at the later part of the year.
"So this has boosted the value of the US dollar in the near term," he added.
Juwai IQI global chief economist Shan Saeed is bullish about the ringgit outlook, expecting it to trade between 4.1700 and 4.4400 by year end 2024.
This will be fuelled by higher oil prices of between US$91 and US$147 per barrel in 2024, a tourism boost to the macro-economy equation and foreign direct investment flows into the country especially from China, Singapore, Europe and the US.
"The current depreciation is due to the strengthening of US Dollar Index (DXY) which has appreciated 2.0 per cent in the last 29 days. In the short term, the ringgit might slide further as the DXY gains globally due to shortage of the dollar," he added.