Deja vu for ringgit as it heads towards dreaded 4.80 level

 

The ringgit touched 4.80 against the US dollar in February, its weakest level since January 1998 during the Asian financial crisis.

PETALING JAYA: A perfect storm seems to be conspiring against the ringgit as it nears the 4.80 level again against the strengthening US dollar.

Hot US inflation data, rising US treasury yields, and escalating Israel-Iran tensions in the Middle East have thrown a spanner in the ringgit’s steady recovery against the US dollar (USD) over the past month following policy measures by Bank Negara Malaysia (BNM).

The ringgit opened lower against the USD today for the second consecutive day, falling to 4.7885 from Monday’s closing of 4.7785. At 6pm, it weakened further to 4.7945.

The ringgit touched RM4.80 against the greenback in February, its weakest level since January 1998 during the height of the Asian financial crisis.

Bank Muamalat Malaysia Bhd chief economist Afzanizam Rashid said US data continued to point towards robust economic growth with retail sales in March rising more than expected to 0.7% month-on-month, beating consensus forecast of 0.4%.

“Consequently, the futures market has assigned a lower probability for rate cuts, suggesting the monetary easing thesis this year has diminished and lending more support to the US dollar.

“We have a heightened geopolitical risk which resulted in forex players flocking to the US dollar, and we have the Fed (US Federal Reserve) which is likely to keep the rate higher for longer,” he told Bernama.

He also said the Fed seemed unlikely to cut the interest rate in the near- term in view of the stubbornly high inflation rate recorded in March at 3.5%.

Surging US treasury yields

Meanwhile, Saktiandi Supaat, head of foreign exchange research at Maybank Singapore, likened the current market climate to a deja vu of last year’s third quarter as the market anticipated a continued surge in US treasury yields that could pressure Asian currencies.

He pointed out that despite depreciating 0.55% over the past five days, the ringgit is not the worst-performing currency.

“Since the release of hot US inflation figures last week and the rise in US yields, the South Korean won, Japanese yen and Philippine peso have fared worse over the same period,” he told The Business Times, Singapore.

He added the rise in oil prices could also help support the ringgit marginally, especially if they rise to levels beyond US$90 per barrel.

Saktiandi expects the ringgit to rebound to RM4.55 against the greenback by end-2024, and to RM3.42 against the Singapore dollar.

Yesterday, BNM issued a statement reaffirming it will ensure that Malaysian financial markets remain orderly and continue to function efficiently in light of the geopolitical situation in the Middle East.

The central bank said it would also ensure sufficient liquidity and the orderly functioning of the foreign exchange (FX) market, supported by ongoing initiatives with government-linked companies (GLCs), government-linked investment companies (GLICs), corporations and exporters bringing more inflow and liquidity into the forex market.

BNM’s Financial Markets Committee (FMC) said earlier this month it was encouraged by the central bank’s “enhanced efforts” to further promote FX conversion activities by government-linked entities, Malaysian corporates and businesses.

It noted that between Feb 26 and April 5, the ringgit was the only regional currency that strengthened against the USD, gaining 0.6%.

In contrast, the Korean won was down 1.6%, Thai baht (-1.5%), Indonesian rupiah, (-1.4%), Chinese yuan (-0.5%) and Singapore dollar (-0.3%) against the greenback during the period, it added. - FMT