KUALA LUMPUR: The ringgit fell 3.3 per cent year-to-date against the US dollar at the end of February, and a rebound to 4.5 against the US dollar in the second half (2H24) of this year would depend on the US' interest rate direction and China's economic recovery.
In the late afternoon, the ringgit was exchanged at a rate of 4.77 against the US dollar.
Speaking to Business Times, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the catalysts to boost the ringgit would all depend on the US interest rate direction as market participants are observing the incoming data such as the US inflation rate and labour market.
"For now, the inflation rate has been trending down but it has taken longer to reach the 2.0 per cent goal," he said.
At the same time, the US labour market has remained robust, leading to wage growth which could explain why the inflation rate has been slow to achieve the 2.0 per cent target, Afzanizam further explained.
Nonetheless, he said the technical indicators have shown that ringgit is already at an oversold condition which means ringgit should be correcting from its prevailing level.
More importantly, the explicit view by the Bank Negara Malaysia that says ringgit is undervalued would be a clear indication that ringgit has gone out of tangent following the weak sentiment.
"In that sense, there could be a trading opportunity for traders.
"In a nutshell, the possibility for the ringgit to appreciate is quite visible," Afzanizam added.
SPI Asset Management managing director Stephen Innes said the ongoing economic slowdown in China, coupled with deflationary pressures, weighs heavily on Malaysia's exports and on the value of the ringgit.
Until signs of recovery emerge in the Chinese economy, the ringgit may face continued downward pressure, he said.
Innes said as local exporters possibly reduce US dollar hoarding in anticipation of this decision, the USD/MYR exchange rate could experience fluctuations.
"Pre-cut, the ringgit may hover around 4.65, but if the Fed indeed decides to cut rates, the local note could strengthen, possibly trading in the 4.50 against the greenback," he said.
The potential Federal Reserve (Fed) decision to cut interest rates in June hinges significantly on the prevailing inflationary landscape in the United States.
The Fed closely monitors inflation indicators as part of its dual mandate to promote maximum employment and maintain price stability. If the inflation data suggests a need for an accommodative monetary policy to stimulate economic activity, the Fed might opt for a rate cut.
"Conversely, if inflation remains sticky the central bank may adopt a more cautious approach.
"Hence the ringgit could struggle to break 4.70 in May as there would be little in the way of pre-cut June momentum," he told Business Times.
Tradeview Capital fund manager Neoh Jia Man said consensus number is indeed pointing to a gradual rebound in ringgit throughout 2024, with most of the gains likely coming in 2H2024.
With market pricing in possibility of cuts only in the second half of the year, ringgit will likely remain sluggish in 1H2024.
"It is tough to forecast FX movement but consensus is now looking at RM4.50/USD by the end of 2024," he added.