Ringgit expected to weaken further against US dollar

PETALING JAYA: The ringgit is expected to weaken further against the US dollar this year, due to the sell-off seen this month, as well as the downside risks posed by a likely global economic recession and dismal oil price outlook.

In a note, Fitch Solutions said it has revised its 2020 ringgit outlook to RM4.35 against the dollar from 4.25 previously.

“We see bearish technical signs from the ringgit having broken through the key support level of RM4.20 and racing towards the next support level at RM4.50/US dollar.

“While we do not expect to the unit to convincingly breach this longer-term support level, we expect more weakness, keeping the ringgit in the weaker half of the trading range between RM4.20 and RM4.50. This is especially the case in Q2 20 wherein we expect the global economy to slip into recession,” it said.

The ringgit strengthened 0.23% to 4.3350 against the dollar as at 5pm today.

Fitch noted that there is a likelihood for oil prices to average far lower compared with levels in 2019.

“To be sure, Brent crude prices have fallen close to 60% year to date as of March 26, trading at US$28.61/bbl, from US$66.24/bbl and we expect Brent crude oil to average US$43.2/bbl in 2020,” it said.

In addition, it expects Malaysian exports to fall 15% this year, given the likely fall in global economic activity over the coming months, with a cut to the Overnight Policy Rate by an additional total of 100 basis points (bps), bringing it to 1.5% from its current 2.5%.

However, over the longer term, Fitch Solutions sees prospects for the stabilisation of the ringgit in 2021, in line with its expectation of the global economy to begin recovering in late fourth quarter.

“The increasing extent to which the ringgit is becoming undervalued in 2020 will also provide a cushion against deeper depreciation in 2021. However, in order to account for the weaker position the ringgit will likely be in by the end of 2020, we have revised our 2021 average ringgit forecast to RM4.25/US dollar, from RM4.20/US dollar previously,” it said.

Affin Hwang Capital Research, meanwhile, expects the ringgit to remain volatile in the near term, with a revised 2020 year-end target to 4.30 against the dollar, from its earlier projection of 4.20.

source https://www.thesundaily.my/business/ringgit-expected-to-weaken-further-against-us-dollar-FN2197106