The ringgit, which has been subject to volatility since early this year, is likely to stabilise next year on the back of a stronger growth momentum in the economy, says a currency strategist.
AmBank Group forex strategist Wong Chee Seng sees a good chance for the ringgit to appreciate in the final lapse of 2014 after the interest rate hiking cycle is likely to start from the second quarter.
“The speed of the ringgit’s appreciation path will be decided by inflationary expectations, export growth trajectory, improvement corporate earnings in the third and fourth quarters of 2014 and the sustainability of US capex cycle.”
He expects the ringgit to trade at 3.030 on average in the fourth quarter of 2014. The ringgit, according to him, will hit a low of 2.940 after five consecutive quarters of above 3.00 against the greenback.
Wong said Malaysia, responding to the volatility of the ringgit, has raised the prices of subsidised fuels by 20 sen per litre, which reflects the seriousness of Prime Minister Datuk Seri Najib Razak in handling the market concern.
To soften the impact of this fuel price increase, the government will likely to announce an increase in cash payouts to low income households (BR1M) during the tabling of the Budget.
Besides the reschedule of some public projects, the goods and services tax may be announced too.
“Translating this into our ringgit’s trajectory, we are likely to see a narrowing spread between high-low ranges of 3.253-3.292 in the fourth quarter, and 3.140-3.177 in the first quarter with room for the ringgit to appreciate along with the improving global macro environment and risk appetite. “
Currency volatility is however, likely in the second and third quarters of next year on the possibility of a weaker-than-expected US growth momentum in post-Quantitative Easing (QE) tapering along with the greater push of monetary easing in Japan.
This translates into higher volatility in ringgit with room for the currency to depreciate, he said.
“Our forecast numbers point to a peak of volatility in the second quarter of 2014 with much wider high-low ranges of 3.114-3.187 and it is likely to ease thereafter with the third quarter ranges of 3.044-3.183 respectively.”
Apart from the post-QE growth momentum easing risks, Wong said to watch out for the likelihood of geopolitical risk either in Asia and/or Middle East and the rate of improvement in Malaysia’s fiscal and debt position.
The ringgit, he noted, has been volatile so far this year and rose 7.4 per cent to a peak of 10.70 per cent in June and has remained elevated above 9.50 per cent since then.
He expects the ringgit to test an extreme range of high of 3.370 in the third quarter this year with a low of 3.073.
The ringgit is likely to to trade at 3.216 on average with the likelihood of hitting 3.355 at the end of the third quarter of this year.
Yesterday, the ringgit was little changed against the US dollar on mild buying interest in tandem with the regional currencies. The ringgit was quoted at 3.2830/2860 to a US dollar from Wednesday's close at 3.2850/2880.