PETALING JAYA: The ringgit, which weakened over 2% in 2018, is likely to trend between RM4 and RM4.20 against the US dollar this year.
Sunway University Business School Professor of Economics Prof Dr Yeah Kim Leng said the projection was based on the expectation of two more interest rate hikes by the US Federal Reserve, weaker oil and commodity prices.
Additionally, moderating growth in China and the global economy is expected to exert downward pressure on Malaysian exports and the currency.
However, he noted that these headwinds could be offset by stronger foreign capital inflows and business sentiments, if the US and China are able to reach a settlement on their trade dispute and a subdued impact arising from Brexit could cushion the weakening global growth momentum. The ringgit depreciated 0.05% to 4.1380 against the greenback at 5pm today.
Recapping the local currency’s performance last year, Yeah noted that the ringgit was among the best-performing emerging market currencies and fared better against trade-weighted basket of currencies.
“It weathered the emerging currency turmoil last year with a smaller depreciation of about 2.3% compared with year-on-year declines of 9.5% for the Indian rupee, 7.3% for the Indonesian rupiah, 5.6% for the Philippine peso, 5.2% for the Chinese yuan, 4.7% for the Korean won and 2.4% for the Singapore dollar.
“Likewise, against a trade-weighted basket of currencies, the ringgit appreciated about 5.4% compared with 4.1% for Thailand and 1.1% for Singapore while the weighted currency for Indonesia fell by 7.3%, the Philippines by 6% and India by 5.5%,” he added.
According to Yeah, the strengthening of the trade-weighted currency is a reflection of an underlying resilience of the real economy.
Meanwhile, FXTM Global Head of Currency Strategy and Market Research Jameel Ahmad said the risk emanating from the slowdown in global economic growth is seen as a threat for emerging market currencies, which also indicates a potential weakening of the ringgit in the early part of 2019.
“Global market uncertainties will continue to direct the trend of emerging market currencies for a long time yet, meaning news flow regarding areas like trade tensions will remain a very sensitive topic for emerging markets.
“Away from US-China trade tensions, concerns over a global economic slowdown will be seen as another threat for emerging markets. This risk does suggest that the ringgit will continue to weaken during the early parts of 2019 at least,” he added.
Jameel noted that it will spell well for the ringgit if the Fed holds back from raising interest rates, which will translate as an opportunity for emerging currencies to gain as it also presents an opportunity for the US dollar to weaken.
“Whether this scenario will hold true will be clearer towards the end of the first quarter of 2019,” he said.