Ringgit eases amid US economic policies

 

KUALA LUMPUR: 

The ringgit ended easier against the US dollar on the second trading day as the market watched closely the development of US politics and ultimately the direction of US rate cuts and US tariffs on China.

Bank Muamalat Malaysia Bhd chief economist Afzanizam Rashid said the market focus had shifted towards the US presidential election in November, which is showing concern about Donald Trump and his economic policies which would favour tax cuts and raising tariffs against China.

“Ultimately, it might have an impact on inflation and would obscure the market view for US rate cuts.

It is still fluid but US politics could intermittently steal the attention from the Fed,

 he said.

Afzanizam said the base case now is that the Federal Reserve (Fed) is on track to cut rates as inflation has come down and there are signs of a cooling labour market.

Meanwhile, Moody’s Investors Service said in a note that the Fed could begin policy easing with a 25 basis points (bps) cut as early as in the July 30-31 meeting.

The consumer price index (CPI) data confirms our view that the hotter-than-expected inflation prints in the first quarter were from one-time price adjustments at the start of the year,

 it said.

Moody’s said the rapidity with which the labour market has cooled suggests that the drag from tight monetary policy is growing.

If the Federal Open Market Committee (FOMC) decides to hold the federal funds rate at the current 5.25%-5.5% in the July meeting, the labour market will likely weaken further, raising the chance of a larger 50bps cut in September,

 it said.

Moody’s said it expects the Fed funds rate to be reduced by a cumulative 50-75 bps in 2024 and a further 100-125bps through 2025.

On a local note, Afzanizam said there is high motivation for foreign investors to invest in Malaysian equities, supported by positive reviews by foreign brokers on the Malaysian market.

The FTSE Bursa Malaysia KLCI (FBM KLCI) is still deemed undervalued, so this would improve the value of the ringgit, as it effectively creates demand for the ringgit,

 he added.

For today’s trading, he noted that the local currency opened at RM4.6718 against the US dollar, hit as low as RM4.6805 during the day, and ended at RM4.6745/4.6790.

At 6pm, the ringgit slipped further to 4.6745/4.6790 against the greenback from yesterday’s closing of 4.6725/4.6745.

Meanwhile, the ringgit firmed against other major currencies.

It gained against the Japanese yen to 2.9503/2.9534 from 2.9578/2.9593 at yesterday’s closing, strengthened against the British pound to 6.0614/6.0673 from 6.0658/6.0684 previously, and improved against the euro to 5.0938/5.0987 from 5.0991/5.1013 yesterday.

However, it traded mixed against Asean currencies.

It rebounded against the Singapore dollar to 3.4783/3.4819 from 3.4810/3.4827 previously, and inched up against the Indonesian rupiah to 288.8/289.3 from 288.9/289.2 previously.

It eased against the Philippine peso to 8.00/8.01 from 7.99/7.99 yesterday and depreciated against the Thai baht to 12.9459/12.9634 from 12.9007/12.9116 previously. - FMT