Friday 29 Mar 2024
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KUALA LUMPUR (Dec 14): AmBank Group Research expects the improving macro fundamentals and fiscal position, healthy consumer and business sentiments, potential normalisation of the policy rate and its undervaluation to pave the way for the ringgit to further catch up in 2018.

In a global foreign exchange strategy note today, AmBank group chief economist and head of research Anthony Dass said positive global gross domestic product (GDP) outlook in 2018 implies prospects for a pickup in investment are getting brighter despite some levels of pronounced risk.

“Looking at the currency markets, we believe local factors will be key drivers in 2018.

“In particular, we feel these will centre around investment as business confidence, corporate profitability, manufacturing performance and capex are on the rise, providing a better feel of the business cycle and investment trend,” he said.

Dass said in his assessment on selected key currencies, the direction of the EUR/USD in 2018 will likely be dominated by normalisation of the conventional policy in which he expects the European Central Bank to end quantitative easing by September 2018, and the timing of interest rate hikes which he foresees at two hikes starting in 2019 by 25 basis points each in 1H and 2H.

“The GDP/USD will very much depend on the outcome of the Brexit negotiations apart from the potential incoming macro data and the direction of the monetary policy.

“The Japanese yen will be influenced by yield spreads against the USD where we are looking at 3 rate hikes by the US Fed in 2018 that will add some downwards pressure on the yen besides expecting the BOJ to maintain its current accommodative monetary policy that should see continuous capital outflow,” he said.

Dass however said the risk aversion momentum should mitigate the downside risk.

“Looking at the yuan, while the concern is on the debt level of the corporate sector, we believe the ongoing reforms to ensure stable growth plus measures to curb shadow banking should bode well for the Chinese yuan and it may strengthen slightly against the USD in 2018,” he said.

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