This article first appeared in The Edge Financial Daily on February 14, 2019

KUALA LUMPUR: The ringgit, which has been on an upward trend over the past two months, has gained 1.5% against the US dollar year to date. Economists, however, have different views as to how the local currency will perform for the rest of this year given the continued global uncertainties.

RHB Research, for one, thinks the ringgit will appreciate to 3.80 against the greenback by the year end.

It said Malaysia’s heightened foreign exchange (forex) reserves and the dovish tone set by the US Federal Reserve (Fed) have lent support, resulting in further US dollar weakness.

On this backdrop, the research house is forecasting that the ringgit may gradually advance to breach the psychological level of 4.00 against the US dollar again.

“The ringgit is expected to continue its strengthening path to 3.80 versus the US dollar by end-2019, due to dollar’s weakness on expectations that the Fed may pause its rate hike stance following signs of slowing US economic growth,” RHB Research said in a note yesterday.

Kenanga Investment Bank and UOB Malaysia, however, expect the ringgit to weaken towards the end of the year.

“On the ringgit’s outlook, we expect its recent pickup may have legs and test the 4.05 level against the US dollar in the near term. However, we still maintain our US dollar-ringgit year-end forecast of 4.10 on the back of weaker global economic growth and the natural tendency for global capital to flee to safe haven assets mainly US Treasuries,” said Kenanga in a report yesterday.

UOB Malaysia said the recent bout of ringgit strength could have followed from flows into domestic equities as well as repatriated Petroliam Nasional Bhd funds to pay the one-off special dividend to the government.

The ringgit gained 0.8% versus the US dollar to 4.077 in the first week of February, following up on the 0.7% gain in January.

In the near term, the Malaysian currency can see further gains, UOB Malaysia senior economist Julia Goh told The Edge Financial Daily. She, however, is less certain about the ringgit’s performance in the second half of this year, saying it depends on the outcome of the US-China trade talks and the possibility that Fed may resume rate hikes.

“US dollar/ringgit is likely to trade in a lower range of between 4.05 and 4.10 before a subsequent move towards 4.15 and 4.18 by mid- and end-2019 respectively, underpinned by the Fed resuming its rate hikes in June and December. Our base case is for an extended period of negotiations between the US and China while tariffs are kept status quo,” she added.

She said that in the near term, the ringgit is likely to be supported by stable domestic growth drivers, gradual policy reforms, and sustained current account surplus.

“The ringgit remains undervalued compared to its peers, and the ringgit-denominated assets may offer safe haven defence amid regional election events in the first half of 2019,” said Goh.