In the realm of economic projections, a soft landing scenario is envisioned for the United States, with a targeted year-end Malaysian Ringgit (MYR) exchange rate of 4.50.
Ambank says its resident economist upholds this baseline outlook, foreseeing potential Federal Reserve rate cuts ranging from 75 to 100 basis points in the latter half of 2024.
Contrary to earlier expectations, recent developments in US Federal Funds futures contracts indicate a deviation from previous projections, reflecting a notable departure from anticipated rate reductions. This shift is unsurprising, given the US inflation rate of 2.9% for 2024, which surpasses the Federal Reserve’s target of 2%.
Over the course of the monetary policy tightening campaign initiated in early 2022, the Federal Reserve has incrementally raised the Fed Funds Rate (FFR) to a range of 5.25% to 5.50%, equating to a cumulative increase of 525 basis points.
Against the current backdrop, with the USD/MYR exchange rate at its present level, our economist maintains a steadfast year-end target of 4.50 for 2024.
It is noteworthy that the FTSE Bursa Malaysia KLCI (FBMKLCI) exhibits a robust negative correlation coefficient ranging from -0.63 to -0.73 in relation to the USD/MYR exchange rate over the past 5 to 12 years.
This correlation suggests that a strengthening of the Malaysian Ringgit towards the end of the year could potentially trigger a reversal in foreign equity flows.
However, it is imperative to acknowledge the potential ramifications of a slower-than-anticipated US rate cut, which could perpetuate MYR weakness and subsequently induce volatility in foreign equity flows throughout the remainder of the year.
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