KUALA LUMPUR: The ringgit is expected to continue to strengthen, staging a much-awaited rebound against the US dollar, driven by remarks from Bank Negara Malaysia (BNM) on its value and a potential US interest rate cut in June this year.
The ringgit strengthened to 4.739 to the US dollar the US dollar as at 5pm.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said it is quite possible that the ringgit is gaining momentum for a rebound against the US dollar.
"It is likely a sign of rebound. From the technical charts, the ringgit has been in oversold condition for quite some time. "Therefore, we should expect some correction, meaning, appreciation, to occur," he told Business Times.
Afzanizam also belives that the strengthening of the ringgit was driven by recent remarks from BNM regarding its value.
On Feb 27, Bank Negara Malaysia governor Datuk Abdul Rasheed Ghaffour stated that the ringgit is undervalued following its decline to a 26-year low.
"Given Malaysia's positive economic fundamentals and prospects, the ringgit ought to be traded higher," he said in a short three-paragraph statement.
He noted that the undervaluation statement by the BNM was a clear indication that the ringgit has been off tangent from its fair value.
Rasheed also said that Bank Negara has stepped up its engagements with government-linked investment companies (GLICs), government-linked companies (GLCs), corporations and investors to encourage continuous inflows to the foreign exchange market.
"Perhaps, this has provided an opportunity to buy the ringgit considering that it has been in oversold condition," he said.
For today, Afzanizam reckoned that the ringgit will likely continue its appreciation, considering that the local currency has been undervalued for an extended period.
Meanwhile, Tradeview Capital Sdn Bhd vice president Tan Cheng Wen believes that it is improbable for the ringgit to significantly depreciate further against the US dollar, reaching levels as low as RM4.8.
He reiterated his viewpoint that in the long run, there is a belief that the US economy might decelerate, leading the Federal Reserve (Fed) to reduce interest rates consequently.
"This will help to narrow the interest rate differential between the US and Malaysia, which will be supportive to the ringgit. "As the saying goes, correlation does not imply causation. Nevertheless, the favorable stance adopted and demonstrated by BNM is certainly advantageous for our ringgit," he said.
Independent economist Julian Suresh Sundaram said the ringgit is likely benefiting from improved inflation figures in Europe and the US, increasing the possibility of a rate cut.
US economists have projected a two per cent overall inflation rate by mid-year, citing a slowdown in housing inflation.
This supports the forecast made in Dec for a potential first rate cut around June.
"The ringgit maintained its gains despite the US dollar turning up and the yen weakening again. This could be a sign that BNM is providing dollar liquidity to the market to ensure the smooth operation of the domestic forex market.
"This also shows that BNM's comments on engaging with state-owned enterprises and institutional investors to boost inflows are having a positive effect, as markets buy the ringgit in anticipation of the flows," he noted.
Moving forward, he said the sustainability of the ringgit's gains depends on the trajectory of the US dollar, which could be influenced by weaker US data or positive developments in Europe, China, or Japan's monetary policy.