Ringgit falls as Fed expected to raise rates soon

 

KUALA LUMPUR: The ringgit opened lower against the US dollar today ahead of tomorrow’s Federal Open Market Committee (FOMC) interest rate announcement.

Investors are anticipating the US Federal Reserve’s decision on whether to raise interest rates by an additional 25 basis points.

They are keeping an eye on the central bank’s accompanying statement, which will provide crucial insights into the future outlook for rates, said an analyst.

According to Bank Muamalat Malaysia Bhd’s chief economist, Afzanizam Rashid, a potential rate hike would favour the US dollar.

This is because the difference between the federal funds rate and the overnight policy rate (OPR) would increase, creating a wider gap and making US assets more appealing to investors.

“Nonetheless, the final purchasing managers’ index (PMI) readings for various jurisdictions were lower in particular for the US manufacturing sector, indicating that manufacturers have become increasingly wary about their business prospects.

“This may have an impact on their decision on labour hiring and capital expenditure. So, the case for central banks to be not overly restrictive is building up,” he told Bernama.

On the home front, Afzanizam said Bank Negara Malaysia (BNM) may keep the OPR steady at 3% throughout the year as the real rate of interest has turned positive for the second month in a row to 0.6%.

“The latest consumer price index (CPI) print for Malaysia came in lower at 2.4% in June, suggesting that monetary policy is not excessively accommodative,” he said.

He expected the ringgit to range between the 4.56 and 4.57 level versus the greenback today.

At 9am, the local note fell to 4.5705/4.5740 against the greenback compared with 4.5640/4.5690 at yesterday’s close.

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

It slipped vis-a-vis the euro to 5.0586/5.0625 from 5.0578/5.0634 at yesterday’s close, and was almost flat against the British pound at 5.8576/5.8620 from 5.8556/5.8620 and was little changed versus the Japanese yen at 3.2305/3.2334 from 3.2307/3.2345 previously.

The local note traded mostly lower against other Asean currencies.

The ringgit slid vis-a-vis the Philippine peso to 8.38/8.39 from 8.35/8.37 yesterday, was easier against the Indonesian rupiah at 304.1/304.5 from 303.6/304.2, depreciated versus the Singapore dollar to 3.4316/3.4347 from 3.4287/3.4328, but improved against the Thai baht to 13.2363/13.2522 from 13.2417/13.2623 on Monday. - FMT