KUALA LUMPUR: The ringgit is expected to trade range-bound within the 4.10 and 4.15 band against the US dollar in the second quarter of 2019 (Q2 2019), barring any major catalyst.
FXTM market analyst Han Tan said the outlook was on the back of respectable economic growth, manageable inflation and robust domestic consumption, all of which would provide a strong base for the local note throughout the year.
“However, much of last week’s sell-off momentum appears to have faded,” he said during a media briefing on the ringgit’s outlook for Q2 2019 here yesterday.
During Q1, he said the ringgit was Asia’s third best performer and was the seventh best emerging market performer in the same period.
The ringgit had strengthened against the US dollar in Q1, even as the currency was exposed to external factors such as the resilient greenback, US-China trade tensions and the anticipated slowdown in the Chinese economy.
Easing concerns over the US-China trade war have also helped to boost the ringgit and other Asian currencies.
“Then in mid-April, headlines around the prospects of Malaysia being dropped from the FTSE Russell World Government Bond Index and from the Norwegian sovereign wealth fund’s holdings likely prompted further outflows that contributed to the ringgit unwinding its gains against the US dollar from the previous three months,” he said.
Meanwhile, the currencies of the five major Asean economies namely Malaysia, Indonesia, the Philippines, Thailand and Singapore are expected to continue to add gains against the US dollar in Q2 following the better performance seen so far in 2019.
Tan said these economies should find support from a Chinese economy that is showing signs of stabilising, even though several of the major Asean economies enjoy ample foreign reserves and monetary policy buffers to protect themselves against
downside risks.
“Should a US-China trade deal is agreed in this quarter (Q2), this would be seen as an encouragement for more gains in Asean currencies, However, there is a risk of a limited relief rally bearing in mind that investors have been pricing in the likelihood of a trade agreement over the past couple of months,” he said.
The overall risks for the full year, however, remain titled to the downside for the global economy amid Europe’s deteriorating economic conditions, Brexit uncertainties and the threat of a new front opening up for global trade tensions such as US-Europe, among other headwinds.
“While investors sentiment is expected to hold up in the coming months, investors may already be recalibrating their outlook going into the second half of the year,” he added. –Bernama
