This article first appeared in The Edge Financial Daily, on April 21, 2016.

KUALA LUMPUR: The ringgit is expected to range between 3.80 and 4.00 against the US dollar in the second quarter (2Q) of this year amid reduced worries of a hike in the US interest rate, says international foreign exchange (forex) broker ForexTime Ltd.

Its chief market analyst Jameel Ahmad said the positive outlook for the local currency is based on the greenback’s weakness, recovery of commodity prices and reduced risks from China.

“I think that the ringgit is moving into the next stage of its psychological recovery of losses against the US dollar,” he told a media conference.

Jameel said three factors — demand for the US dollar, poor sentiment towards commodities such as oil, and China’s slowdown — led to the depreciation of the ringgit last year. However, the situation has reversed this year.

On the demand for the US dollar, Jameel said the greenback’s weakness has helped to contribute to its attractiveness in the emerging markets.

“As such, the ringgit is benefitting as are other currencies such as Indian rupee and Indonesian rupiah. The reversal of US interest rate expectations is one of the reasons for the US dollar’s weakness,” he said.

Noting that the rebound in commodity prices has largely been technical, Jameel said he expects the price of West Texas Intermediate oil to be at the US$42 to US$44 level in 2Q, with a low of US$35.

“The US$35 mark which was once the psychological resistance has now become the psychological support for the oil price. With oil above US$35, it is difficult to see the ringgit moving back above RM4,” he said.

As for China’s slowdown, Jameel said the China anxieties will cool down in 2Q with a rebound in exports in China and with the People’s Bank of China declaring its intention for the yuan’s stability.

This is a positive sentiment for emerging markets as a whole, including Malaysia, he said.

However, Jameel pointed out that emerging markets are likely to enter a period of weaker growth and the return of potential “risk off” attitude could also limit the momentum driving the ringgit.

The analyst said the volatility in the ringgit is a little too high, making it impossible to provide an outlook for the currency beyond 2Q.

On the ringgit’s outlook against currencies other than the US dollar, Jameel said the outlook against the British pound is very positive with potential for further gains.

“The euro looks set for further correction (higher), therefore the ringgit might drift lower against the euro.

“Similarly, the ringgit might weaken against the Australian dollar and New Zealand dollar, as both (these currencies) appear set to recover further losses. As for the Singapore dollar, it is expected to remain relatively stable against the ringgit” he also said.

Jameel added that the recent rebound in the momentum for the ringgit has helped ease the pressure on Bank Negara Malaysia to move interest rates higher, with the rebound also leading to a lower inflation reading as 2016 continues.