Ringgit opens higher as US dollar slips after FOMC minutes

The local note advances to 4.0425/4.0540, extending the emerging market currencies' rally against the greenback.

KUALA LUMPUR:

 The ringgit extended its rally, opening slightly higher against the US dollar on Wednesday as the greenback weakened after the release of the Federal Open Market Committee (FOMC) meeting minutes overnight.

At 8am, the local currency edged up to 4.0425/4.0540 versus the dollar from Tuesday’s close of 4.0460/4.0505.

Bank Muamalat Malaysia Bhd chief economist Afzanizam Rashid said the FOMC minutes initially lent support to the US dollar, but cautioned that monetary easing amid higher inflation risks undermining policy credibility in managing the economy.

“The US Dollar Index (DXY) rose 0.21% to 98.238 points as US Federal Reserve (Fed) officials were divided on the outlook for the Fed funds rate, with some favouring a move closer to the neutral level to forestall a slowdown in the labour market,” he said.

“However, easing policy in a higher-inflation environment could backfire and weaken monetary policy credibility. On that basis, the ringgit may trade between RM4.05 and RM4.06 today,” he noted.

IPPFA’s director of investment strategy and country economist, Sedek Jantan, said the minutes suggested that future rate cuts would be slower, more contested, and more data-dependent than previously assumed.

“By revealing a deeply divided committee and a willingness to keep policy restrictive for longer if inflation risks persist, the Fed has effectively lifted the expected path of US real interest rates.

“This strengthens the dollar’s yield and safe-haven appeal, weighing on emerging market currencies, including the ringgit,” he added.

At the open, the ringgit traded higher against a basket of major currencies. It strengthened against the Japanese yen to 2.5850/2.5926 from 2.5948/2.5978 on Tuesday, rose versus the British pound to 5.4440/5.4595 from 5.4678/5.4738, and appreciated against the euro to 4.7479/4.7614 from 4.7621/4.7674.

The local unit was mixed against Asean peers. It advanced against the Singapore dollar to 3.1474/3.1566 from 3.1526/3.1566, was little changed against the Indonesian rupiah at 241.0/241.8 from 241.2/241.6, and was almost flat versus the Philippine peso at 6.87/6.89 from 6.87/6.88.

However, it eased against the Thai baht to 12.8460/12.8924 from 12.8404/12.8620. - FMT