Can Ringgit reach RM4 against USD1?

The ringgit has been tumbling and sputtering for the most part of early 2024 agitating investors and Malaysians alike.

But wait a minute. Things are turning for the better right now as the currency has made a U-turn huffing and puffing its way up for the past several months.

In the last week alone, the ringgit has made a dramatic 180-degree about turn to become one of the region's rising currencies to power up to as high as RM4.15-RM4.20 to the US dollar.

The ringgit had appreciated against the euro, pound, yen and its regional peers the Thai baht, Indonesian rupiah and Singapore dollar.

The question on everybody's minds right now - will this reversal of fortune sustain? Can it bulldoze its way up to the psychological RM4 to the dollar?

If yuan strengthens, so will ringgit

Part of the reason why the ringgit is on a bull run is due to China's rallying yuan which hit its strongest level in 16 months last Wedneaday after the superpower nation unveiled its economic stimulus package.

China has been Malaysia's largest trading partner since 2009 and fluctuations in the yuan can directly impact the Malaysian economy.

Stephen Innes of SPI Asset Management said Chinese policymakers have finally come through, delivering on weeks of speculation with a fresh set of monetary easing measures, and the markets are buzzing. 

"Add to it the US Federal Reserve's recent jumbo rate cut to the mix, it’s like throwing gasoline on the reflationary fire—equities are up, commodities are surging, and pro-cyclical emerging market currencies like the ringgit are getting a serious boost.

Speaking to DagangNews, Innes said it’s a bit of a perfect feedback loop, of which the US Federal Reserve cuts make the ringgit stronger and China’s economic stimulus pushes commodities higher and traders are piling onto the ringgit, expecting more inflows.

How long will the ringgit spike-up last?

But here’s the million-dollar question: How long can this party last? 

"Well, that depends. On the US side, everything hinges on that elusive soft landing everyone’s been hoping for.

If the US economy takes a nosedive, the ringgit rally could deflate fast," said Innes.

He added over in China, they’re throwing policy spaghetti at the wall, but will it stick? 

"While policymakers are doing everything they can to fight off deflation and reignite growth, we still don’t know if their long-term efforts will pay off. 

What we do know right now is that the immediate impact is clear: the ringgit is riding high.

Exporters set to lose

Logically, whenever the greenback weakens, exporters will earn less ringgit.

So Malaysian exporters will face tough times when the ringgit rebounds as they will earn less.

This is okay considering the exporters previously  laughed all the way to the bank when the ringgit buckled. There is always a cycle of up and down when it comes to the ringgit

Parents with children studying overseas especially in the US should be happy as they get to fork out less ringgit to the dollar to support their children.

Investors may return to Malaysia

Now that the ringgit is solid again, investors local and foreign may return to Malaysia.

A stable ringgit is a sign of a stable Malaysian economy and a steady political situation.

Thus foreign direct investments and foreign funds may flow into the country and stock markets, lending and overall positive vibe to the country.

Bank Negara Malaysia Governor Datuk Seri Abdul Rasheed Ghaffour said the ringgit's rise is partly driven by Mslaysia'a robust economic outlook and structural reforms.

Second quarter gross domestic product grew 5.9 percent beating estimates, amid robust spending and trade.

Ringgit strong because US dollar dipped

Bear in mind the ringgit is strong partly because the US dollar has softened.

So the ringgit can dive again at anytime if the the US Federal Reserve decides to tweak up the interest rates again.

So the country's leaders must continue to work hard to ensure the economy stays strong by promoting growth and stimulating domestic consumption.

Can the ringgit scratch RM4?

Now the multi-zillion question on everybody's mind is : can the ringgit land at RM4 to the greenback?

"Can it stay below 4.20? Sure. But to push closer to the 4.00 mark? That’s going to take some serious coordination between the US and China. 

We’re talking a flawless soft landing in the US and a full-blown housing revival in China. If that magical alignment happens, the ringgit might just take off like a rocket," said Innes.

Nobody really knows which direction the ringgit is headed next.

But to quote Innes : For now, let's just enjoy the party. - DagangNews.com