KUALA LUMPUR: The ringgit appreciated against the US dollar by 0.8 per cent year-to-date in the first three months of this year, said MIDF Amanah Investment Bank Bhd.
In its Economic Review report today, the investment bank said that for the third month, the ringgit grew against the US dollar by 0.6 per cent month-on-month (m-o-m) and ended the month at 4.434 (previous: 4.463).
It said the weakness in the US dollar performance was partially attributed to the market future sentiment, which leaned towards weaker growth or the increase in the probability of a recession in the United States (US).
“In particular, ringgit gained in the early part of the month and strengthened to 4.41 by March 7, on the back of weakening US dollar,” said MIDF.
It noted that the US dollar index (DXY) weakened by 3.2 per cent m-o-m to 104.21, marking the second month of weaker performance.
On average, the DXY also eased by 3.0 per cent m-o-m to 104.13 (February: 107.32).
Meanwhile, the bank stated that despite its favourable assessment of Malaysia’s economic performance, the ringgit’s recent decline was primarily attributed to capital outflows on the back of the persistent divergence in interest rates between Malaysia and the US.
With the US Federal Reserve (Fed) expected to continue easing its monetary policy later this year, it foresaw the ringgit continuing to appreciate.
“However, the pace of rate cuts, and therefore, the ringgit’s appreciation bias, may be limited by the elevated inflation outlook in the US.
“For example, the US import tariff hikes will be among factors that could push US inflation higher in the coming months,” it said.
MIDF also opined that the ringgit’s appreciation against the US dollar was also reflected towards the ringgit’s performance against other cross-currency pairings, including against, among others, the Turkish lira (5.0 per cent m-o-m), the Taiwan dollar (1.6 per cent m-o-m), and the Korean won (1.4 per cent m-o-m).
Meanwhile, on the outlook, MIDF continued to forecast the ringgit’s strengthening against the US dollar this year, targeting an average of 4.23 (versus 2024’s average of 4.56).
“As stated in our latest outlook report, we adjusted our year-end ringgit projection to 4.13 (from 4.03 previously), looking at more stable movement recently.
“The anticipated narrowing of interest rate differentials, even with only two rate cuts by the Fed this year, will provide support for emerging market currencies, including the ringgit,” it said.
Moreover, Malaysia’s strong growth fundamentals, evidenced by sustained trade and current account surpluses, reinforced the investment bank’s positive outlook.
Consequently, it anticipated the MIDF Trade-Weighted Ringgit Index to climb to 95.0 by year-end, indicating broader ringgit appreciation.
Nevertheless, MIDF projected volatility in the financial markets to continue to affect the foreign exchange markets, given the ongoing geopolitical tensions and the intensification of the trade war.
On another note, it said changing inflation and growth outlook would also affect the pace of policy changes by monetary authorities. – Bernama
