Malaysia’s ringgit is poised for a reprieve after its worst monthly performance since late 2016 as China’s reopening heralds more tourist arrivals and bolsters exports.
(Bloomberg) — Malaysia’s ringgit is poised for a reprieve after its worst monthly performance since late 2016 as China’s reopening heralds more tourist arrivals and bolsters exports.
DBS Group Holdings Ltd., Barclays Plc and RBC Capital Markets see the ringgit staying around the current level of 4.45 by the end of June. Fears that the Federal Reserve may prove hawkish for longer hammered emerging markets last month, driving a 4.8% slide in the ringgit versus the dollar before sentiment stabilized in recent days.
“The impact of China’s reopening in terms of tourism arrivals and trade will be felt more keenly by the middle of the year, helping support the ringgit,” said Alvin Tan, head of Asia FX strategy at RBC in Singapore. “Plus, pressure on emerging-market currencies will ease as the Federal Reserve inches closer to the end of its rate-hike cycle.”
China’s economic rebound is set to boost the outlook for Asian currencies this year, with the ringgit also seen a beneficiary from Malaysia’s strong trade links to the world’s second-largest economy. China was Malaysia’s biggest export destination before the pandemic and even as its share has fallen since then, it still stood at $47 billion last year, about 14% of the total.
There’s also potential for a rebound in tourist arrivals from China after the nation dismantled strict Covid curbs. The Southeast Asian nation, famed for white beaches and historic towns, attracted 108,067 Chinese tourists from January-September last year compared with 3.1 million in 2019.
Bank Negara Malaysia’s policy decision Thursday will also be on the radar for currency traders. A Bloomberg survey of 16 analysts so far shows nine expecting the central bank to hold rates at 2.75% for a second consecutive meeting. The rest see a quarter-point hike.
Fed Advantage
HSBC Holdings Plc is predicting bigger gains for the ringgit as the prospect of the Fed reaching the end of its tightening cycle is set to end the dominance of the dollar. Traders are pricing the peak of US rates to happen in September.
“The ringgit is very sensitive to the broad dollar movement,” said Paul Mackel, the global head of foreign-exchange research at HSBC in Hong Kong, which forecasts the ringgit at 4.28 by the end of June. “The combination of a solid external position, potential for stronger capital inflows could also help the ringgit.”
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The central bank has also increased its ability to defend the currency from volatility as foreign reserves rebounded from a two-year low reached in October. The nation’s dollar stockpile has risen about 10% since then to $115 billion in January.
“BNM will lean against the move if the pressure on the currency is sustained,” said Ashish Agrawal, head of foreign-exchange and emerging-market macro strategy research at Barclays in Singapore. “The narrative would be more like stability for the ringgit ahead after weakening sharply recently.”
Here are the key Asian economic data due this week:
- Tuesday, March 7: RBA cash rate target; China trade data; Philippines and Thailand inflation
- Wednesday, March 8: Japan BoP current-account balance
- Thursday, March 9: China CPI, PPI; Malaysia overnight policy rate
- Friday, March 10: BOJ policy balance rate, 10-year yield target
–With assistance from Kevin Varley.
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