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Malaysian ringgit plunged -2.9%mom to RM4.733, as the dollar appreciated on Jan-24. On average, the ringgit depreciated -0.5%mom to RM4.683. The currency’s performance followed the dollar movement closely during the month despite resilient domestic demand, supported by a healthy labour market and low inflation.
As predicted, BNM kept the OPR unchanged at 3.00% in the Jan-24 interest rate decision, leaving the current FFR-OPR spread status quo.
“Despite the ringgit’s lacklustre performance at the outset of the year, we project the ringgit to appreciate in 2024, moving towards RM4.20 by year-end,” says MIDF.
The strengthening of local currency will be supported by the expected decline in interest rate differentials, with the Fed is expected to reduce rates while BNM to maintain the OPR at 3.00%.
US dollar started the year strong. The USD appreciated for the first time in 3 months as the DXY index gained +1.9%mom to close at 103.27 in Jan-24 (end-Dec-23: 101.33).
The monthly average change was smaller as the dollar index only increased slightly by +0.2%mom to 102.88 (Dec-23: 102.64) after 2 months of decline. Moving forward, we foresee the dollar to weaken later this year as the Fed is expected to cut interest rates as inflation moderates further.
Nevertheless, there is a possibility for prolonged strength in US dollar in view of risks of recession in the US economy and escalating geopolitical tensions that might lead to greater risk aversion.
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