The ringgit is expected to trend higher this week, driven by the positive effects of China’s domestic stimulus and a shift in the US Federal Reserve’s policy stance. According to Stephen Innes, managing partner at SPI Asset Management, the ringgit is likely to rally further due to China’s recent infusion of cash into its economy and renewed commitment to supporting its property sector. This stimulus aligns with Malaysia’s status as China’s largest export destination, potentially boosting Malaysia’s exports.
Despite these positive factors, the ringgit remains affected by domestic political issues and external geopolitical tensions, particularly concerning US-China relations. The extent to which regional investors embrace China’s stimulus measures will play a crucial role in determining the ringgit’s performance in the coming week.
Earlier this week, the US Federal Reserve surprised the market by endorsing 75 basis points of interest rate cuts in 2024, leading to the nickname Great Monetary Pivot of 2024. Meanwhile, the Federal Open Market Committee (FOMC) decided to maintain the federal funds rate (FFR) at 5.25-5.50 percent after its latest meeting.
Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia, believes that the ringgit may attempt to break the immediate support level of RM4.6611 next week, as the Fed is expected to implement interest rate cuts next year. He also highlights that the focus is now shifting to the Japanese yen, as the Bank of Japan (BOJ) is projected to abandon its ultra-loose monetary policy in January based on a Reuters poll. The upcoming BOJ monetary policy meeting on December 19 will be closely monitored for clues regarding the removal of monetary policy accommodation.
In the past week, the ringgit exhibited mixed performance, influenced by US inflation data and the outcome of the US FOMC meeting. Against the US dollar, the ringgit was slightly lower, while it faced declines against the Japanese yen, British pound, and euro. On the other hand, it gained ground against the Philippine peso, while experiencing marginal weakness against the Indonesian rupiah. The ringgit also edged down against the Singapore dollar and weakened against the Thai baht.
Overall, the ringgit’s performance in the coming week will depend on various factors, including the impact of China’s domestic stimulus, developments in US-China relations, and the potential interest rate cuts by the Fed. Market participants will closely watch these events and their effects on the ringgit’s value.
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