Kenanga Projects Ringgit to Reach 4.40 Against US Dollar

Kenanga Investment Bank Bhd is forecasting the Malaysian ringgit to approach the 4.40 level against the US dollar by the end of the year. This prediction is stimulated by emerging trends suggesting that the US Federal Reserve may cut its rates by only 50-75 basis points (bps) this year, contrary to the 100-125 bps currently anticipated by the market.

The recent economic updates include critical US jobs data that continue to sway market predictions regarding whether the Fed will opt for a 25 or 50 basis points rate cut in September. Present estimates place the chances of a 50 bps reduction at 30 percent.

Kenanga IB remains optimistic about the ringgit’s performance, building on last year’s forecast that anticipated the currency reaching 4.25 by the end of 2024 due to expectations of weakening US economic performance and subsequent rate cuts by the Fed. This positive outlook was further buoyed in August when the ringgit surged, marking a remarkable 6.0 percent appreciation, making it the world’s best-performing currency that month. This surge came in response to significant corrections in the US dollar, following hints from the Fed about potential rate cuts amidst cooling inflation and a weakening labor market.

Meanwhile, expectations are set for Bank Negara Malaysia (BNM) to uphold its current monetary policy over the next 12-15 months, given the subdued inflation and steady economic growth. However, the potential for increased inflation remains if governmental policies shift or external risks, such as geopolitical tensions, rise. Kenanga IB acknowledges that BNM will maintain vigilance and readiness to respond to any necessary adjustments.

The robust performance of the ringgit has also been bolstered by Malaysia’s strong growth prospects, stable monetary policy, fiscal reforms, and relative political stability, providing a solid foundation for the optimistic forecasts presented by Kenanga IB.