Ringgit expected to weaken to 4.10 against dollar by year-end

Kuala Lumpur: The ringgit is expected to weaken further to 4.10 against the US dollar by end-2018 due to external and domestic uncertainties. RHB Research Institute Sdn Bhd said the currency may continue to depreciate on a stronger US dollar, trade war tensions between the United States (US) and China and domestic policy uncertainties.

"Like other emerging economy currencies, the ringgit has been on a weakening trend in recent months against the stronger US dollar as the US Federal Reserve (Fed) turns more hawkish after its second rate hike in June," it said in its economics view report on Monday.

The report also noted the Fed was expected to raise its rates twice for the remainder of 2018, and another three times in 2019.

The ringgit was also affected by the surprise change in the Malaysian government following May's general election which led to rising policy uncertainty, it said, noting that the switch of heads in government-linked companies were also likely to lead to a slowdown in economic activities in the months ahead.

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"This, coupled with easing inflation due to the freeze on RON95 fuel prices, suggests that Bank Negara Malaysia may not have much room to raise overnight policy rate further for the rest of the year.

"In this regard, the ringgit may have to shoulder most of the burden of adjustment due to capital outflow arising from major central banks' policy tightening, thereby weakening further," it said.

The report also said, if the scenario continues, the ringgit could potentially overshoot RHB's year-end target of 4.10, but it was unlikely to weaken too severely.

RHB said higher oil prices would cushion the impact on the ringgit and help boost investor confidence and contribute to higher oil revenue for the government, as well as the current account surplus in the balance of payments.

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"Capital outflow from the fixed income market does not appear to be as severe as in the past three major incidences that resulted in massive capital outflow and weaknesses.

"This will boost the fixed income market movement due to the high level of foreign investor participation in this market," it said. –Bernama

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