KUALA LUMPUR: Economists believe the US Dollar decline over the past few weeks, driven by weaker US data, will help strengthen the ringgit over the near term.
They also expect the local note to gain traction after the turmoil in the US markets.
To note, the Dollar's declined over the past three weeks due to the weaker payrolls, followed by inflation coming in lower and the Producer Price Index (PPI) surprisingly moving into negative.
CME chief executive officer Dr Carmelo Ferlito said he does not see strong fluctuations of ringgit against the US Dollar moving forward unless the domestic economy goes through a strong shock internally or internationally.
"So far, higher interest rates have favoured the US Dollar, making the US attractive for capitals seeking returns but also signalling a strong will of the Fed to fight inflation, which has been so far welcomed by investors," he told The New Straits Times.
Kenanga Investment Bank Bhd said the ringgit has extended its weakness and depreciated above the 4.46 level against the US Dollar, driven by concerns over US debt ceiling negotiations, weaker-than-expected US first quarter (Q1) 2023 gross domestic product (GDP) reading and growing US-China tensions.
Additionally, the narrowing of the Malaysia-US bond yield premium to below 25 basis points (bps) has also put pressure on the local note.
Redvest Wealth and Asset Management chief investment officer Julian Suresh Sundaram said the ringgit would likely rebound between 4.40 to 4.46 ahead of the Federal Open Market Committee (FOMC)'s decision.
"The major factor is the Fed's expectations, which will lower the dollar and help strengthen the ringgit over the near term.
"A dovish decision from the FOMC will cause the ringgit and stocks to rally," said Julian.
He said as the market move towards the FOMC meeting next week, the dollar seems to be inclined towards moving lower, equity supported should nothing blows up and yields continue moving both ways.
Kenanga said next week, attention will shift to the Fed and European Central Bank (ECB) monetary policy decisions.
Although the Fed is expected to hike by another 25 bps, any guidance of a potential pause at its next meeting is likely to put pressure on the greenback, Kenanga noted.
"Moreover, a potential hawkish surprise by the ECB could make the Euro more appealing, further weakening the USD.
"No reaction is expected from Bank Negara Malaysia's (BNM) rate decision as it is expected to maintain status quo," the research firm noted.
According to reports, the US Dollar rose on Thursday as weaker-than-expected Q1 US economic growth is viewed as not likely to deter the Fed from raising interest rates next week.
The advance estimate of Q1 of US GDP showed a 1.1 per cent annualised rate during the period. The economy grew at a 2.6 per cent pace in the fourth quarter (Q4).
Economists polled by Reuters had forecast GDP rising at a 2.0 per cent.
Universiti Tunku Abdul Rahman economics professor Wong Chin Yoong said the ringgit is still on track to bounce back this year.
"The local currency will likely respond to the expected path of interest rates rather than a single interest rate decision.
"I believe that the expected slowing down in Fed's rate hike, both speed and scale, will remain intact.
"A rise of 25 basis points would only confirm market expectations all this while," he added.