Ringgit forecasts lowered for end-2024 following Trump win
KUCHING (Nov 11): The research arm of Kenanga Investment Bank Bhd (Kenanga Research) has revised their end-2024 ringgit forecast from 4.25 per US dollar to 4.57 following the recent US election victory by presidential candidate Donald Trump.
In two economic viewpoint reports, the research arm explained that their revision reflects new assumptions that the US Treasury (UST) yield will remain above 4.00 per cent in the near-term due to expectations of a higher Federal Funds Rate (FFR).
“With investors demanding a higher term premium amid expected volatility under Trump’s presidency, we anticipate the 10-year UST yield to remain elevated, potentially settling at 4.25 per cent by year-end, up from our previous 3.60 per cent forecast,” they opined.
They added that rising macro uncertainties and a more restrained US Federal Reserve (Fed) cutting cycle in 2025, alongside concerns over fiscal sustainability and inflation, could drive yields even higher.
This sustained high of UST yield will cause unfavourable yield differential between Malaysian Government Securities (MGS) and UST which may add pressure to the ringgit.
Furthermore, the research arm reckoned that Trump’s victory will be a critical risk to the Fed policy outlook as they are now unlikely to react pre-emptively to Trump’s anticipated fiscal expansion until 2025 and may hint at potential risks in the December Federal Open Market Committee (FOMC) meeting.
While economic deceleration and a cooling labour market may justify another 25 bps cut in December, Kenanga Research opined that rate cuts may pause in Jan and be limited to only once or twice in 2025 as the Fed proceeds cautiously to avoid policy reversals if inflation resurges.
Explaining their reasoning, the research arm pointed towards the most recent US FOMC meeting on Nov 6 to 7 which concluded with the Fed unanimously cutting interest rates by 25 bps and steering clear of speculating on the economic impact of Trump’s victory.
The research arm noted that Fed chair Jerome Powell had stated that, “even with today’s cut, policy is still restrictive” and clarified that “in the near-term, the election will have no effect on our policy decisions”.
Kenanga Research interpreted this as hints at further rate cuts and the Fed likely waiting until 2025 to consider any fiscal shifts under Trump.
“We continue to anticipate that incoming data could support a gradual pace of rate cuts amid a slowing economy,” they said.
Besides the FFR rate and MGS-UST yields, the research arm believes that the potential economic challenges in China could also impact the ringgit’s movement.
However, strong domestic fundamentals and ongoing fiscal consolidation efforts should continue to shield the Ringgit from any sharp depreciation trends.
For 2025, Kenanga Research opines that Bank Negara Malaysia (BNM) will likely continue keeping the overnight policy rate (OPR) at 3.00 per cent throughout the year in order to balance economic growth with inflation risk stemming from renewed uncertainty and potential volatility in the global economy that the recent Trump win has brought about.
-Agency
