Ringgit can break 4.00 barrier next year

KUALA LUMPUR: The ringgit may strengthen below 4.0000 against the US dollar next year if the US economy continues to weaken coupled with a sustained domestic growth momentum.

Economists opined that the current domestic and global conditions may hinder the ringgit from extending its gains but the target is feasible with effective policy execution by the government.

IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the ringgit is currently trading around 4.2200 against the greenback, having appreciated by about 5.5 per cent so far this year.

This was driven by improved fiscal discipline, renewed foreign inflows, and steady current account surpluses.

"For the currency to strengthen below 4.0000 versus the US dollar, it would require an additional 5.2 per cent appreciation over the next year — a move that historically has coincided with broad-based US dollar weakness and stronger global risk appetite," he told Business Times.

Finance Minister II Datuk Seri Amir Hamzah Azizan on Monday reportedly said the ringgit may strengthen to just below 4.0000 versus the dollar in 12 months on the back of strong fundamentals.

The minister said the ringgit is still able to push ahead even if the US Federal Reserve (Fed) slows its pace of easing.

"The Finance Minister II's optimism that the ringgit could strengthen below 4.0000 against the dollar within the next 12 months reflects confidence in Malaysia's underlying economic fundamentals.

"While this target is encouraging, achieving it would be challenging given the current domestic and global conditions," Sedek said.

"Malaysia's economic fundamentals remain supportive. The export sector continues to show resilience, the fiscal deficit is on a narrowing path, and foreign reserves cover more than six months of retained imports.

"However, further gains would depend on sustained domestic growth momentum, effective policy execution, and a shift in global monetary conditions,"he added.

Tradeview Capital fund manager Neoh Jia Man said it is possible for the ringgit to reach the level given that the US economy is showing signs of weakness, mainly in employment and housing data.

The weakening figures in the US economy could prompt the Fed to implement further rate cuts.

"Domestically, the government remains committed to fiscal consolidation, while Malaysia's macroeconomic fundamentals continue to demonstrate resilience despite ongoing trade uncertainties." he said.

However, Neoh said a potential depreciation of the yuan could weigh on the ringgit's performance, given the close trade and investment linkages between Malaysia and China.

"The high correlation between the two currencies means that yuan weakness often translates into downward pressure on the ringgit," he said.

Meanwhile, other external factors that could affect the ringgit's upward movement is persistent US dollar strength, driven by prolonged Fed's tightness. This could limit gains among emerging-market currencies.

"In addition, weaker growth in major trading partners, particularly China and the Eurozone, may weigh on Malaysia's export-driven economy, curbing foreign exchange inflows.

"Ongoing geopolitical fragmentation, trade policy realignments, and supply chain disruptions could also introduce further volatility into the currency market," he added.

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