KUALA LUMPUR – The Malaysian Ringgit gained ground against the U.S. dollar on Thursday, taking advantage of a weakening greenback due to subdued U.S. inflation. According to Malaysia’s central bank, the ringgit closed at 4.5945 against the U.S. dollar, up from 4.6510 on Wednesday.
In June, the U.S. headline consumer price index (CPI) rose by 3 percent year-on-year, marking the lowest inflation reading since March 2021. The figure also fell short of market expectations of 3.1 percent. The softening inflation data contributed to a decline in the value of the U.S. dollar, benefiting the Malaysian Ringgit.
RHB Investment Bank, however, cautioned that the drop in the U.S. dollar’s value may be temporary. The research house maintained its near-term target of 4.65 for the USD/MYR exchange rate, with an end-3Q23 forecast of 4.65-4.75, followed by 4.70-4.80 by the end of 2023. RHB Investment Bank highlighted the potential for the momentum to shift in favor of the U.S. dollar due to interest rate differentials between the U.S. and Malaysia.
Maybank Investment Bank concurred with the short-term outlook, suggesting that the USD/MYR exchange rate could potentially rise further amid subdued global sentiment. However, the research house anticipated a positive reversal for the ringgit in the fourth quarter. They based their forecast on expectations of a more dovish stance from the Federal Reserve (Fed) and a stabilizing growth outlook for China.
Maybank Investment Bank expressed confidence in a positive medium-term outlook for the ringgit. As the Fed’s rate upcycle reaches its peak and U.S. inflation continues to trend lower in the second half of the year, a potential unwinding of the U.S. dollar could occur. Furthermore, they anticipate that China’s economy will exhibit a discernible recovery by the fourth quarter, fueling investor appetite for regional emerging market assets.
As a result, Maybank Investment Bank maintains its expectation for the USD/MYR exchange rate to reach MYR 4.50 by the end of the year, building upon the current level.
With the Malaysian Ringgit capitalizing on the weakening U.S. dollar and the prospects of improved economic conditions, market participants will closely monitor the developments in global inflation trends, the Federal Reserve’s monetary policy, and China’s economic recovery as key factors influencing the currency’s performance in the coming months.