KUALA LUMPUR: BMI Research has revised its year-end target for ringgit to 4.00 against the US dollar (USD), from 4.55/USD, on the strength of its performance in the third quarter of 2024 (Q3).
The ringgit reversed its broad weakening trend since the start of 2024 to gain 12.1 per cent in Q3 2024, positioning it to be the best performing emerging market currency in the region.
"We see scope for the ringgit to touch the next level of resistance at the RM4.00/USD level by end-2024, though the relative strength index (RSI) which appears heavily oversold as things stand, could point to short-term depreciation," it said in its note today.
Its forecast is somewhat more optimistic than Bloomberg consensus of 4.30/USD.
The ringgit is expected to strengthen through 2025 due to the narrowing yield differentials with the US and a relatively resilient growth outlook, according to BMI Research.
Looking beyond the six-month horizon, the research house forecast the ringgit to strengthen by 9.0 per cent in 2025, reaching 3.55/USD by end-2025.
Accordingly, the firm has revised its forecast for the ringgit to average RM3.80/USD, compared to RM4.48/USD previously.
"The primary driver will be further policy loosening worth 125bps in 2025, which will take the Fed Funds rate down to 3.00 per cent by year end."In contrast, we expect the Bank Negara Malaysia (BNM) to remain on hold at 3.00 per cent through end-2025," it said.
BMI Research expects interest rate differentials between the US and Malaysia to narrow in favour of the ringgit.
Whereas the firm previously expected the US Federal Reserve to kick off its easing cycle with a 25 basis points (bps) cut at its September meeting, the Fed instead opted for a 50bps cut that took the funds rate down to 5.00 per cent.
"As such, we now think the Fed will continue with its cutting cycle in the coming months, lowering its policy rate further by a further 75bps in Q4 2024, compared with 50bps previously.
"This implies that narrowing yield differentials will be supportive of the ringgit particularly if we are right in expecting the BNM to leave its overnight policy rate on hold at 3.00 per cent through end-2024," it said.
In addition, BMI Research expects the ringgit to draw strength from the sustained current account surplus in 2025, though it forecasts a slight narrowing from an anticipated 2.6 per cent of gross domestic product (GDP) in 2024 to 2.4 per cent of GDP in 2025.
Central to this forecast is built on its expectation for economic activity to slow in the US and Mainland China in second half of 2024 and the firm expects this weakness to feed through to Malaysia's goods exports.
"After all, the two economies account for more than 25 per cent of Malaysia's goods exports.Ends