THE ringgit is expected to hover in the range of RM4.10 and RM4.15 against the greenback for the second quarter of 2019, barring major catalysts, said FXTM market analyst Han Tan.

Tan said the ringgit has been the second best performing Asean currency and the third best Asian currency against the US dollar in the last quarter, despite external headwinds it had to weather. 

However, news of Malaysia being potentially dropped out of the FTSE Russell’s World Government Bond Index and the Norwegian wealth fund’s holdings led to the currency’s temporary weakness.

Tan added that the negative news has resulted in further outflows and the local unit unwinding its gains against the US dollar.  

“However, much of last week’s selloff momentum appears to have faded, and we expect USD/MYR to trade within the RM4.10-RM4.15 range for the rest of Q2, barring any major catalysts for movement either way,” he said during a roundtable on the ringgit outlook today in Kuala Lumpur. 

Asked on whether negative headlines will continue to be a risk to the ringgit, he said this is likely to be the case until October.  

“Those headlines add an element of risk. However, the ringgit remains supported by Malaysia’s economic fundamentals.”

The ringgit is likely to draw support from respectable economic growth, manageable inflation and robust domestic consumption for the remainder of the year.

However, external headwinds such as the US-China trade tension and slowdown in global growth continue to pose a risk. 

The weakness of the ringgit is transitory and will not cause alarm, Tan said. 

Malaysia’s economy remained resilient and did not crumble even when the ringgit was trading at RM4.50 and RM4.20 against the greenback in January 2017 and November 2018. 

Tan said the upward movement in Brent crude oil prices thus far has not helped in strengthening the ringgit.

“If oil continues to trade above US$70 per barrel, then we could see a stronger correlation between oil and ringgit,” he said.

Budget 2019 was planned based on the oil price of US$72 per barrel.

Tan is optimistic that Brent crude oil could hit US$80 in June. 

The rising US shale oil output, slowdown in global growth and US President Donald Trump ramping up pressure against the Organisation of the Petroleum Exporting Countries could have potential downside risk to the price of Brent crude oil.

On the domestic front, rising oil prices could also result in higher fuel prices. However, this will depend on the new fuel pricing mechanism.

The economy is expected to see a moderated growth of between 4.3% and 4.7%, as opposed to the 4.7% growth last year. 

Domestic demand will continue to be the main driver of economic growth.

Escalating trade tensions and the synchronised deceleration of global economic growth could also be potential risk to Malaysia’s gross domestic product growth.

Going forward, the country’s current account will remain in surplus despite narrowing slightly.

Tan noted that the deflation seen in January and February is not a sign of recessionary pressure.

He said Malaysia is instead undergoing disinflationary pressure, which means prices are rising at a slower pace. 

He added that for the consumer price index, a better picture could be only be obtained in the last quarter of this year, once the base factors have been readjusted and the impact of the sales and services tax has been factored in. 

While Bank Negara Malaysia may have ample policy space to support the economy, external risk may prompt a cut in the Overnight Policy Rate.

Tan cautioned that a cut in interest rate may weaken the ringgit. 

At the time of writing, the ringgit was trading at RM4.132 against the US dollar. 

FXTM is a leading international forex brokerage firm. – April 24, 2019.