Cautious sentiment ahead of FOMC meet to weigh on ringgit next week

Cautious sentiment ahead of FOMC meet to weigh on ringgit next week

Investors to closely watch outcome, look for further direction for greenback

KUALA LUMPUR – Cautious market sentiment is expected to influence the ringgit’s movement versus the US dollar next week, with external factors remaining the main culprit.

Bank Muamalat Malaysia Bhd chief economist and social finance head Mohd Afzanizam Abdul Rashid said investors would be closely monitoring the outcome of the United States Federal Open Market Committee meeting, scheduled on June 13 and 14, which would signal further direction for the greenback.

This week, the market has seen the Reserve Bank of Australia and Bank of Canada unexpectedly raising their policy rates by 25 basis points (bps).

“So the perception is that the US Federal Reserve might follow suit as some of the members are still leaning towards a hawkish stance.

“In that sense, the ringgit versus the US dollar is likely to stay in a narrow range of 4.60 to 4.61 next week as market participants adopt a wait-and-see attitude, while seeking guidance from the Fed in respect to the direction of the interest rates and whether the Fed is really open to the idea of higher-for-longer narrative,” he said.

Market consensus expects the US central bank to maintain its stance by raising the Fed Funds Rate by 25 bps.

Should that happen, it means the Fed has raised the policy rate by 525 bps within 16 months, less than during the previous interest rate hike cycle from June 2004 to June 2006, during which a total of 425 bps was increased, Afzanizam added.

On Tuesday, Prime Minister Datuk Seri Anwar Ibrahim, who is also finance minister, highlighted in Parliament that the recent depreciation of the ringgit was mainly due to interest rate hikes in the US.

He noted that the local unit was not the only currency in the region that had slipped in value this year.

Another key development on the local front this week was the appointment of Datuk Shaik Abdul Rasheed Abdul Ghaffour as Bank Negara Malaysia governor for a five-year term effective from July 1, 2023.

He will succeed Tan Sri Nor Shamsiah Mohd Yunus, who completes her five-year term on June 30, 2023.

For the week just ended, the local note was lower versus a basket of major currencies over the four trading days.

The market was closed on Monday, June 5, in conjunction with the birthday of the Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah.

On a Friday-to-Friday basis, the ringgit weakened against the US dollar to 4.6115/6160 from 4.5745/5785 a week earlier.

The local note also fell against the Japanese yen to 3.3022/3059 from 3.2957/2989 on the previous Friday, depreciated vis-a-vis the British pound to 5.7819/7875 from 5.7323/7373 last week, and declined versus the euro to 4.9611/9659 from 4.9254/9297 previously.

Similarly, the ringgit traded lower against its Asean peers.

It went down against the Singapore dollar to 3.4294/4330 from 3.4026/4059 a week earlier, weakened versus the Thai baht to 13.3196/3376 from 13.2402/2591 last week, slipped against the Indonesian rupiah to 310.6/311.2 from 305.0/305.5 previously, and eased vis-a-vis the Philippine peso to 8.23/8.24 from 8.18/8.19.

– The Vibes, June 10, 2023

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