PETALING JAYA: Fitch Solutions has projected the ringgit to be at RM4.25 and RM4.15 against the US dollar for 2020 and 2021 respectively, on the back of a still-low incidence of new Covid-19 cases and the reopening of the economy.
Since June, the local currency has seen a broad rally with the year-to-date (ytd) average exchange rate strengthening to RM4.236/US$ from RM4.248/US$ previously.
“We expect the ringgit to give up some of its gains in the short term against the dollar, as the greenback appears oversold and poised for a short term rebound,” said the research arm of Fitch Ratings.
In light of these factors, it has revised its 2020 average exchange rate forecast to RM4.250/US$, from RM4.300/US$ previously.
From a technical perspective, the research arm noted that the ringgit has bucked its expectations for the key support level at RM4.200/US$ to hold and has remained below this level since Aug 5.
However, it does not expect the unit to remain consistently below this level over the short term, given that from a technical perspective, the dollar is poised for a near-term, intermediate rebound.
“Furthermore, rising risk aversion due to the resurgence of the Covid-19 outbreak in several places across both developed and emerging markets, and the likelihood of a disputed US presidential election later in the year could see safe havens outperform at the expense of riskier assets such as EM currencies,” said Fitch Solutions.
However, oil prices are expected to remain steady given the correlation to ringgit which would provide support against a steep depreciation over the short term.
The research arm has forecast Brent crude prices to average at US$44 per barrel (pb) for 2020 and US$51 pb for 2021, which suggests some limited upside from the current ytd average of US$42.61 pb as of Sept 23.
It also noted that a relatively tighter monetary policy is likely to curb further depreciation in the ringgit over the remainder of 2020, as it expects Bank Negara Malaysia to remain on hold and build policy buffers before hiking next year, following its decision to hold the benchmark Overnight Policy Rate at 1.75%.
“Over the long term, we expect the ringgit to be on a slightly stronger footing and trade around the mid-point of its long term trading range between RM3.800/US$ and RM4.500/US$,” Fitch said.
“We see prospects for a stabilisation of the unit in 2021, in line with our view for the global economy to begin recovering in late Q4’20. Also, medium-term prospects for the US dollar are more bearish in our view due to loose fiscal and monetary policy.”
For the medium term, the research arm has adopted a more bearish prospects for the greenback due to loose fiscal and monetary policy and subsequently revised its 2021 average ringgit forecast to RM4.150/US$ from RM4.200/US$ previously.
It also highlighted that the local currency remains materially undervalued in real effective exchange rate (REER) terms, the spot REER came in 8.6% below the 10-year moving average in August, compared to 10.9% in May. Therefore, the ringgit will remain attractive valuation-wise, providing support to the currency over the long term.
29/09/2020 11:32:29
Since June, the local currency has seen a broad rally against the dollar. – AFPPIX
Source: The Sun Daily
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