OCBC sees ringgit at RM4.16 against US dollar at year end

This article first appeared in The Edge Financial Daily, on June 21, 2019.
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KUALA LUMPUR: OCBC Bank expects the ringgit to end the year at RM4.1641 against the US dollar.

“In relation to the ringgit, we do not see excessive depreciation pressures that are out of line from its Asian counterparts,” said the bank in a statement yesterday.

“Although the US dollar-ringgit may still edge higher in the coming months alongside the rest of Asia, we expect the pair to end the year lower than current levels,” it added.

OCBC said that given the spectre of the US-China trade war and soft economic outlook, there may be few positives for Asian currencies as a whole.

The bank expects currencies like the Thai baht and Indian rupee to outperform the North Asian currencies.

“At this juncture, the likes of the baht and the rupee may be less exposed to trade-related risks, and enjoy background support from foreign inflows into Thai and Indian assets,” it said.

OCBC economist Terence Wu said the macro outlook for Asia continues to look uninspiring as the Sino-US trade tensions remain a potential flashpoint and may impinge on the macroeconomic readings further.

He said the trade war is in an escalation phase, with the scope of conflict widening out beyond tariffs into specific industries at this junction.

As such, he said there may be limited scope for a recovery in the growth outlook for the upcoming months.

“In the longer term, there may be a case for some optimism that sustained policy accommodation in China may eventually lead to the domestic economy stabilising and bottoming out by 2020.

“The hope is for recovering China to act as an anchor of stability, and for growth to pick up sufficient momentum to filter down towards the rest of Asian economies. This scenario, however, is predicated on the trade tensions blowing over,” he added.

Wu said the global central banks look poised to move further towards the dovish spectrum, with the US Federal Reserve (Fed) also open to considering policy easing.

“Our house view pencils in a 25 basis points (bps) rate cut by the end of the year, and another 25 bps cut in 2020 by the Fed. Market expectations point towards even more rate cuts over the next 12 months.

“However, even though the US economy is in a slowdown, we do not think it is on the verge of a deep recession. Thus, the macro-fundamentals, for now, do not appear to justify a deep rate cut cycle,” he added.