KUALA LUMPUR: The ringgit could end the year as high as 4.300 versus the US dollar if the United States' Federal Reserve halts its rate hike and the 2024 Budget, which will be tabled this Friday, provides good vibes.
The local note continued its uptrend to end higher against the greenback last Friday.
But month-on-month (MoM), the ringgit remained soft as it closed 1.1 per cent lower at 4.689 in September.
On a monthly average, the ringgit depreciated 1.5 per cent MoM to RM4.682. It even reached its weakest level on Sept 27 at 4.7080, the lowest level since early November 2022.
On a Friday-to-Friday basis, the ringgit weakened to 4.7115 on Oct 6 from 4.6930 a week earlier.
MIDF Research is confident that the ringgit will end the year at 4.30 due to its recent weakness and the Fed's policy pause.
The ringgit could also get a boost from a faster pick-up in China's economic recovery.
The firm maintained its forecast for the ringgit average at 4.480 against the greenback for 2023.
MIDF Research expects emerging markets' currencies, including the ringgit, to benefit from reversing fund flows into riskier markets once the appeal for the safety of the dollar subsides.
Malaysian Institute of Economic Research senior research fellow Dr Shankaran Nambiar said the Fed may think that a higher hike might be necessary to tame inflation.
"If this is the case, we might see the ringgit continuing to weaken in the coming weeks."
He said the value of the local note will also depend on how 2024 Budget pans out.
"If there are sufficient reasons in the budget to buoy optimism, then perhaps the ringgit may be able, to some extent, to defy the pressures otherwise on it," he added.
SPI Asset Management managing partner Stephen Innes said 4.500 will be a more realistic target for the local note by year-end. This is given the expected slowdown in the US economy, potentially to a rate below one per cent in the fourth quarter (Q4).
The slowdown is the result of the 75-basis points interest rate hikes implemented by the Fed last year.
Innes noted the housing market is bearing the brunt of these rate hikes, with affordability deteriorating due to high borrowing costs and rising home prices.
The US economy is also poised to have the services sector taking a hit as households cut back on dining and travel expenses.
"While this slowdown may still be considered a soft landing, it aligns with the Fed's goal of curbing inflation.
"However, the recent resurgence in oil prices to around US$90 per barrel has halted the steady decline in inflation, which had dropped from its four-decade peak of 9.1 per cent year-on-year in the summer of 2022 to 3.0 per cent in June.
"Services inflation continues to be sticky, suggesting a return to the Fed's two per cent target is unlikely until early 2025. The problem is that given the sticky inflation, the Fed will not likely cut rates until the end of 2024 which would be the real signal to sell the dollar," he told Business Times.
He, however, noted that the recent surge in the value of the greenback has exposed several global vulnerabilities that could potentially drive it even higher.
One of the most significant factors contributing to this trend is the US economy's resilience to rising interest rates, which enables the US to offer relatively higher yields to investors, making the dollar an attractive option.
"Although the dollar may experience some headwinds and possible pullbacks, its overall potency may continue if the global economic rebalancing process fails to meet expectations.
"Therefore, in order to witness more balanced growth globally, starting with China and then Europe picking up the baton, we would need to see a lot more progress. However, given the concerns over inflation in Europe and the property market in China, this may not occur until well into 2024.
"Thus, while I do anticipate a slight weakening of the dollar, the sell-off could be mild until the Fed is compelled to reduce rates," he added.