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Springtime for the Ringgit: Boosted by a Weaker Greenback
Hey there, folks! It's about time we talk about some exciting currency movements. The ringgit, our Malaysia's beloved currency, is on a roll again, thanks to the greenback taking a tumble. Let's dive into the details!
The ringgit embarked on a winning streak at Friday's opening bell, with a strengthened value against the almighty US dollar. At 8 am sharp, it stood tall at 4.2095/2270, a marked improvement from the previous day's closing of 4.2155/2245. So, what triggered this extraordinary reversal?
Well, our very own Dr. Mohd Afzanizam Abdul Rashid, Bank Muamalat Malaysia Bhd's chief economist, made some astute observations. He noticed that the US Dollar Index (DXY) had taken a nosedive, plummeting by 0.72% to 97.0921—a level not seen since march 2022. What's more, this dive was fueled by some less-than-impressive US economic data, showing a cooling labor market and a more relaxed inflation trajectory.
Fancied yourself a bit of an economist, you say? Let's break it down. The core Producer Price Index (PPI) for May jumped 3.0% year-on-year, but it fell short of predictions, coming in below the consensus estimate of 3.1%. Oh, and those initial jobless claims? They ain't been friendly, ticking up to 248,000 last week, compared to the anticipated 242,000 number.
Why be concerned about these figures? Well, they matter quite a bit, as they're crucial barometers shaping the stance of the mighty US Federal Reserve ahead of their much-anticipated meeting on June 17-18, aka the Federal Open Market Committee (FOMC) gathering. While the Fed is rumored to keep the Federal Funds Rate unchanged at 4.50%, watchdogs will closely scrutinize their quarterly economic projections.
In previous forecasts, Fed officials had suggested that the policy rate would hit 3.9% by 2025, implying potential rate cuts this year. Quite the teasers, don't you think? And, as Dr. Mohd says, “with appetizing emerging market currencies on the horizon, including the mighty ringgit, we expect these currencies to rise!”
But wait, there's more! As the ringgit soared against the greenback, it mostly slipped when matched up against other key currencies. It found strength against the euro, rising to 4.8860/9063 compared to the previous day's close of 4.8765/8869. However, it weakened when pitted against the Japanese yen and decreased against the British pound.
When compared to our ASEAN brethren, the ringgit showed mixed results. It inched up against the Philippine peso and Indonesian rupiah but slipped against the Singapore dollar and Thai baht.
But hey, it ain't all doom and gloom for our ringgit. As the greenback dips, it's giving a well-deserved boost to emerging market currencies like ours, my friend! So keep a keen eye on these currency fluctuations in the coming days. This ride could just get wilder!
P.S.: It is worth noting that the US dollar's slide is part of a broader trend, with signs of structural dollar weakness emerging due to uncertainties in US policy and evolving global economic dynamics. In fact, models suggest that the US dollar has been overvalued by about 20% against developing market currencies compared to long-term averages. As emerging market economies show stronger growth prospects relative to developed markets, this overvaluation is likely to narrow, paving the way for a rosier future for the ringgit and other emerging market currencies. Keep riding that tide!
- In light of the US dollar's weakening, Dr. Mohd Afzanizam Abdul Rashid, Bank Muamalat Malaysia Bhd's chief economist, predicts a rise in the value of Malaysia's currency, the ringgit.
- The Federal Open Market Committee (FOMC) meeting on June 17-18 is expected to closely evaluate the quarterly economic projections, possibly indicating potential rate cuts this year for the US Federal Reserve.
- Ahead of the FOMC meeting, the ringgit is surging against the US dollar but slipping when matched against other key currencies such as the euro, Japanese yen, and British pound.
- Despite mixed results when compared to other ASEAN currencies, the rising US dollar and the potential strength of emerging market economies relative to developed markets suggest a rosy future for the ringgit. Investors might find it beneficial to keep a close eye on personal-finance investments related to Malaysia's economy and the ringgit's performance.
