PETALING JAYA: The ringgit fell to an eight-month low against the US dollar on outflow worries, as investors see a higher chance of a rate increase in the United States by year-end.
Expectations of another rate hike by the US Federal Reserve (Fed) had prompted investors to sell their holdings in emerging markets, including Malaysia. Foreign investors pulled out RM227mil from Bursa Malaysia last week, MIDF Research said in a note yesterday.
Maybank Kim Eng head of foreign exchange research Saktiandi Supaat told StarBiz that the greenback, which had been bullish against major currencies, would strengthen against the ringgit to between 4.25 and 4.30 before retreating to the 4.10 or 4.15 level by year-end.
“Fed chair Janet Yellen’s comments hinted of a possibility for the US Fed to keep its current monetary stance. Still, markets are not convinced,” Saktiandi said.
The ringgit declined 0.5% against the US dollar yesterday to 4.218 – its lowest level since late February this year.
Traders have priced in a close to 70% probability that the Fed would raise the benchmark interest rate by at least 25 basis points in the December meeting.
Analysts believed there would be no rate hike in November, close to the US presidential election, but said there could be one in the December meeting.
The Fed raised the federal funds rate last December by 25 basis points, while the minutes of the September Federal Open Market Committee meeting showed that policymakers were deeply divided over the next rate hike.
Yellen had said that any rate hike would be data-dependent, with focus especially on jobs.
Saktiandi said that the strengthening oil prices would support the ringgit, but felt that emerging-market currencies would bear the brunt of the political uncertainties surrounding the debate over the manner in which Britain would exit the European Union.
However, he noted that while oil prices had mitigated some of the ringgit’s weakness, the yen weakness and in particular speculation that Beijing may lower the yuan further would continue to weigh on the ringgit. Saktiandi said should Chinese policy-makers devalue the yuan, this would have an impact on Asian currencies.
He added that should Bank Negara choose to cut in the benchmark overnight policy rate (OPR), this could make the ringgit more fragile. The central bank lowered the OPR by 25 basis points in July to 3% on the weakening economic outlook.
Meanwhile, a technical analyst said the ringgit would soon trade at 4.25 to the greenback due to speculation over a US rate hike. He said the weakening ringgit could also be due to the speculation that oil prices may not hold at current levels of US$50 to US$52 per barrel.