Pause in US rate hike fails to perk up the ringgit

 

KUALA LUMPUR: The ringgit failed to take advantage of the US Federal Reserve’s (Fed) decision to pause interest rate hikes, continuing its descent when the market opened today.

It was traded at 4.6210/4.6245 just after the opening bell, down marginally from yesterday’s close of 4.6195/4.6235.

At the Federal Open Market Committee meeting last night, the Fed decided to leave its benchmark rate at 5.25%.

ActivTrades trader Dyogenes Rodrigues Diniz said with the small differential between the US rate and Malaysia’s key interest rate of 3%, the US dollar could lose its attractiveness in the short and medium term, opening the space for a possible appreciation of the ringgit over the next few months.

He said the Fed’s latest move also marked an important change in its stance, having spent the last 10 meetings gradually raising interest rates.

“This also raises the chance that the Fed might continue to lower interest rates in the upcoming meetings, although that still seems unlikely for the time being,” he told Bernama.

“From a technical point of view, if the ringgit-US dollar (rate) manages to break below 4.5980, it could drop as low as 4.5250 in a few days,” he added.

However, Bank Muamalat Malaysia Bhd chief economist and social finance head Afzanizam Abdul Rashid shared a contrarian view.

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He said although the Fed left the benchmark rate at 5.25%, it remained hawkish and leaned towards lowering the inflation rate towards its target level of 2%.

This, he said, has been reflected in the latest forecast that the Federal Funds Rate would end the year at 5.6% from the previous estimates of 5.1% in March this year.

In that sense, he said, another 25 to 50-basis point hike in the subsequent meetings during the second half of 2023 was quite likely.

“Moving ahead, the focus would be on the European Central Bank whereby the consensus is expecting another 25-basis point hike in its policy rate when the Governing Council meets today,” Afzanizam told Bernama.

“We expect the ringgit to gain some ground against the US dollar, but against the euro, the ringgit is easing,” he added.

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

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It advanced against the Japanese yen to 3.2899/3.2926 from 3.3015/3.3046 at yesterday’s close but slipped versus the British pound to 5.8497/5.8542 from 5.8423/5.8473 yesterday and fell vis-a-vis the euro to 5.0078/5.0116 from 4.9918/4.9962.

However, the local note traded mostly higher against other Asean currencies.

The ringgit was slightly lower versus the Indonesian rupiah at 309.9/310.3 compared with 309.8/310.3 at yesterday’s close.

However, it appreciated against the Thai baht to 13.2864/13.3022 from yesterday’s 13.3192/13.3380, rose vis-a-vis the Singapore dollar to 3.4429/3.4460 from 3.4433/3.4465 and improved versus the Philippine peso to 8.25/8.27 from 8.26/8.27 previously. - FMT