PETALING JAYA: The strength of the ringgit in the short term will depend on the extent of the US Federal Reserve’s (Fed) rate cut and the growth of the Chinese economy, said the executive director of the Malaysian Research Institute economics, Dr. Anthony Dass.

He said a larger-than-expected rate cut by the Fed and stronger-than-expected growth in China would ease some downward pressure on the local currency.

“Malaysia, like other Asian economies, has faced the impact of China. Although some recent stimulus measures have temporarily boosted regional assets, the broader slowdown has put additional pressure on export-dependent currencies like the ringgit,” he told StarBiz.

According to Dass, the Fed’s interest rate hikes over the past two years have created a large interest rate differential, making U.S. assets more attractive to investors.

“While rate cuts are expected in 2024, they are expected to be modest as the Fed remains cautious, supporting dollar strength against the ringgit and other Asian currencies,” he said.

Furthermore, Dass said the US presidential election taking place on November 5 has increased market volatility.

“With candidates potentially favoring different trade policies, there is a risk of renewed trade tensions between the United States and China, which could further affect Malaysia’s trade outlook and monetary stability,” he said. -he noted.

A recent Bloomberg report indicated that the ringgit was on track for its worst month since 2015, down more than 6%.

According to the report, renewed dollar strength has hurt Asian currencies, most of which have come under intense pressure last month as traders reassessed the pace of the Fed’s interest rate cuts and avoided risky assets in the run-up to the elections.

However, not everyone feels the same way.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said heightened uncertainties over the US presidential election and next week’s Federal Open Market Committee meeting were the main concerns.

He explained that demand for the US dollar will be higher when market uncertainty is high, but the Fed will reduce interest rates.

“It’s a question of how much monetary policy easing will be prescribed. It appears the Fed will stick to its usual 25 basis point cut next week. Saying that, I believe the ringgit will strengthen further once the uncertainties are lifted,” he said. TA Research agrees, stating that looking ahead to 2025, it expects the ringgit’s upward trajectory to continue with a high probability of breaking the psychological RM4 level. barrier and test the next support level at RM3.90.

“Although some volatility is expected between RM4.30 and RM3.90, the ringgit may record a stronger average of RM4.10 in 2025, better than the RM4.55 expected this year,” a- he indicated.

The research house added that the ringgit is most likely undergoing a “correction phase” at the moment, but on a more positive note, the worst could be behind as the ringgit has recovered after being at -above RM4.60 for almost three years.

He added that this recovery is supported by strong economic fundamentals and improving investor sentiment towards Malaysia.

“Over the medium term, we maintain a positive outlook on the ringgit, supported by narrowing yield spreads with the United States and a relatively resilient domestic economic growth outlook. We believe there is further potential for long-term appreciation, particularly if the Fed continues monetary easing,” he said.

As for factors that could influence a move below RM4, the research firm said economic growth, widening trade surplus, an increase in foreign direct investment as well as strong global demand for Malaysian bonds would provide a boost.

The report also said that the appreciation of the ringgit has varied sectoral impacts, with sectors that benefit from lower import costs and foreign exchange gains from US dollar-denominated debt will see a positive impact.

This includes construction materials, consumer goods, insurance, media, electricity and utilities, and transportation.

“But sectors that rely on foreign revenues, such as automobiles, video games, healthcare, oil and gas, plantations and technology, face revenue pressures as foreign revenues lose the value. The banking sector also needs to monitor regional currency fluctuations which can reduce revenues.