KUALA LUMPUR (Jan 5): The Malaysian ringgit appreciated to 3.9945 against the greenback early today, bolstered by positive market sentiment, coupled with an expectation of higher interest from foreign funds into Malaysian equities in early-2018.

According to Reuters, ringgit strengthened to its highest level against the U.S. since August 2016, bolstered by higher oil prices.

At the opening bell today, ringgit advanced about 0.2% to 3.9987 to the dollar, breaking the psychologically significant 4 level.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie acknowledged that the ringgit's strengthening was probably due to positive catalysts which are coming from the effect of the upcoming election this year.

“I would say it is a good beginning, after four years of depreciation since 2013 to 2016. I’m not sure until when the ringgit can hold its footing, but as long as positive sentiments still remain, then the ringgit will still be below the 4 level.

“I think it’s too early to "be chill" about, because there are still a lot of hurdles. But in the near-term, I think the ringgit will still be on the upside and I hope it continues to deliver,” he told theedgemarkets.com . 

However, Lee cautioned against getting overly excited, as it was only the beginning of the year.

He said that with the recent gain in crude oil prices over the last few days, te ringgit has continued to climb. 

According to energy portal Oilprice.com, Brent crude was quoted at US$68.06 per barrel as of yesterday — the highest level since July 8, 2015.

Additionally, Lee said foreign money has also started to re-flow back into the equity market, which helps lift demand for the ringgit.

According to Maybank IB Research, December 2017 saw foreign funds returning with a net buy of an estimated RM900 million, which lifted their full-year 2017 net buy position to about RM10.6 billion, after three consecutive years (2014-16) of net sell.

On the global outlook, Lee said the U.S. and China economies are likely to remain strong this year, partly due to the global market.
U.S. equity and the Dow Jones continue to hit new highs that spill over their effect on the emerging markets, including Malaysia.

However, Lee is of the view that the ringgit is among the undervalued emerging market currencies, despite the positive catalysts.

“It is still considered as undervalued currency, but there is room for [the] ringgit to strengthen, assuming all the US FED rate hikes would be gradual; if it is aggressive, it will give pressure to the ringgit.

“We should be moving towards a more fair value which I think [the] ringgit should be between 3.50 to 3.70 level,” Lee said.

Meanwhile, AmInvestment Bank (AmBank) group head of research and chief economist Anthony Dass concurred the ringgit has started off the year on a good footing, breaking its 4 level. Dass expects it to sustain throughout the year.

“We are expecting a strong ringgit this year. Our fair value on the ringgit is at the 3.95 level but the best case fair value could go up to 3.76 level. We are expecting that kind (3.76) of level to come in within this year,” he said when contacted.

Dass said the rally also comes on the back of an expectation of an OPR hike as early as this month.

“All these are good sentiments and we are expecting Bank Negara Malaysia to raise the rate in January, so that will also reduce the interest rate differential between us (Malaysia) and U.S. FED,” he added.