KUALA LUMPUR (Jan 15): Standard Chartered is expecting the ringgit to perform stronger at a range of 4.0 to 4.1 against the US dollar in 2020.
"We have turned more positive on the ringgit. We are looking at a recovery in the Malaysian ringgit over the next one year," Standard Chartered head of Asean and South Asia FX research Divya Devesh told reporters here today. This is in line with its bullish views on other emerging market currencies.
Three factors supporting the emerging market that Devesh highlighted are: global growth expectations have stabilised, inflation remains fairly low and subdued globally, and global central banks' balance sheets size is increasing again.
He highlighted the stronger ringgit would be against the backdrop of weakening US dollar. "We have turned more bearish on the US dollar. In terms of valuation, it is at a 20-year high," said Devesh, adding that currencies in most of the emerging markets are undervalued.
He noted that the widening twin deficits in the US and prospects of US election surprise are negatives for the US dollar.
Locally, Devesh said the recovery in ringgit this year is primarily because of the improvement in Malaysia's external balances, noting that there is a divergence between terms of trade and ringgit.
While external balances have improved, he noted that ringgit has yet to rally to reflect this improvement. "Thus, we believe that this gap will close as we go through this year," he added.
Additionally, he said that in the last two months, foreign investors, especially in the fixed income side, have increased their allocation in Malaysia, which is a positive development for the ringgit.
At the time of writing, the ringgit is trading at 4.077 against the greenback.