The ringgit emerged as the second best performer in the region year-to-date, as investors continue to chase higher yields amid a stronger outlook for growth in Asia.
Earlier this week, the ringgit hit a intra-day high of 3.0032 per US dollar, registering a nine-month high since March 12 last year. At the close on Tuesday, the local currency ended slightly lower at 3.0161 to the US dollar.
Alliance Research economist Manokaran Mottain said in a report: “The appreciation was largely underpinned by relatively sound economic fundamentals at home and around the region. With the United States, Japan and much of Europe forced to keep rates at near-zero, global investors are flocking to markets with higher yielding currencies,” he explained.
He said the ringgit had been the second best performer regionally, after the Thai baht, with a 1.4% increase against the greenback.
Manokaran cited recent Bank Negara statistics that foreign holdings of Malaysian Government Securities rose sharply from RM102.1bil as at end-2011 to a record-high of RM128.1bil in November 2012, reflecting Malaysia's growing appeal among foreign investors seeking better returns.
Moving forward, the economist remained bullish on the ringgit, with a year-end target of 2.95 per US dollar, following stronger recovery in the region as well as the appeal of higher yields from ringgit-denominated assets.
“However, in the immediate term, our technical analyst sees resistance between 2.99 and 3.00. An upside penetration of the 2.99 level would likely see the ringgit advancing into higher ground, with an eye to test the 2.95 level,” he noted.
On the sectors, he said that the ringgit appreciation should benefit major exporters with high import-content, as it lowered their production costs via lower import prices. “But the appreciation needs to be gradual as this may erode export-competitiveness, to a certain extent.”
A stronger ringgit will also help arrest inflationary pressures in the domestic economy, which is expected to inch up to 2.5% in 2013. It would then enable Bank Negara to keep the overnight policy rate at 3% until year end, according to him.
He forecast the local gross domestic product growth to be 5% in 2013, driven by private consumption and private investment under the 10th Malaysia Plan and Economic Transformation Programme.
On the Asian front, Manokaran noted that the region had been driven by domestic demand, a economic shift that translated into resilience.