KUALA LUMPUR, March 29 ― Malaysia’s underperforming currency will improve against the US dollar by the end of 2017 and then remain bullish into 2018, Business Monitor International (BMI) Research said today.
The Fitch Group unit said the ringgit will gradually rise to 4.350 against the US dollar and reach 4.200 by the end of 2018.
“We maintain our bullish outlook on the MYR over the coming months, with the currency supported by a positive technical picture. Over the long-term, we expect gradual appreciation as an undervalued exchange rate, an improving external position, and a return to political stability lend support to the currency,” it said in an emailed statement.
It noted that the ringgit is being tested in the short-term but expressed confidence in its resilience if it succeeds in breaking the 4.420 mark.
BMI also said that with the downward pressure mounting on US bond yields, the 4.1 per cent yield offered on Malaysia's 10-year local bonds has made it an attractive catch for investors.
It said the central bank’s efforts to ensure currency stability also appears to be yielding results, leading to the reduction in ringgit's liquidity in the onshore market.
“However, excessive strength will be capped as real interest rate differentials between Malaysia and the US continue to narrow in favour of the US. This is as we expect Bank Negara Malaysia (BNM) to keep rates on hold while forecasting the US Fed to hike rates one more time by 25bps in 2017,” it said.
Bps is a measurement unit to address changes in interest rates and bond yields, and US Fed refers to the US Federal Reserve System.
BMI attributed some of the factors for the ringgit to stay buoyant to an undervalued real effective exchange rate, a positive net international investment position, improving terms of trade, return to political stability, and a positive growth dynamics relative to the US.
