KUALA LUMPUR – The ringgit may fall below its fair value target of 4.30 against the US dollar, supported by Malaysia’s export and foreign direct investment (FDI) recovery, according to CIMB Investment Bank Bhd.
In a note, the research bank maintains its preference for emerging markets (ringgit) and developed markets (Japanese yen) based on expectations of faster Federal Reserve rate cuts in 2024-2025.
“The ringgit and yen have appreciated sharply against the greenback, as anticipated when we elevated them to our top foreign exchange (FX) picks, and there is potential for further strength in the near term,” CIMB Investment said.
The bank noted that a combination of front-loaded US rate cuts, positive exports and FDI prospects, the unwinding US dollar longs and normalising bond/equity non-resident exposure supports the view that the US dollar could potentially exceed its fair value of 4.30 against the ringgit.
“We turned constructive on the ringgit in March and believe that gains could persist in the near term as net FX inflows increase,” it added.
CIMB Investment highlighted that the recovery in electronics products exports and trade surplus may add up to US$2 billion per month in net foreign currency (FCY) proceeds through end-2024.
“Moderating USD/FCY preferences, due to narrowing US-Malaysia yield differentials and coordinated encouragement of flexible two-way flows for exporters and resident investors, should help translate this into ringgit gains,” the note said.
At of 2.47pm, the ringgit was trading higher at 4.4200/4.4280 against the US dollar compared to 4.4945/4995 at Friday’s closing. – August 5, 2024